The quirky art piece, worth an estimated £30,000, was among a haul of precious Martinware pottery taken by professional art thieves from Ealing Council’s Pitzhanger Manor House in 2007.
Public sector insurer Zurich Municipal,= paid out a total of £288,000 for the loss, as well as for a previous theft of Martinware from the same collection at Southall Library in 2005.
Despite the missing pottery now being recovered, Zurich has chosen to waive a requirement for the insurance settlement to be repaid - effectively gifting the Wally Bird to the council.
Martinware pottery was crafted in Southall by four brothers during the late 19th and early 20th centuries.
Wally Bird sculptures are among their most famous works, renowned for their large beaks and feet, human-like heads and humorous expressions.
The stolen Wally Bird, dating back to 1894, was spotted in an auction catalogue by researcher Nigel Wilson, working with Christopher A Marinello, a lawyer and expert in tracing stolen works of art.
Mr Marinello negotiated the unconditional return of the piece, providing his services pro bono to Ealing Council.
The find comes just two years after Zurich granted Ealing Council two other recovered pieces of Martinware pottery - a Wally Bird and a barrister face jug - taken in the 2005 and 2007 thefts.
Paul Redington, a regional major loss manager for Zurich UK, said: “We’re delighted this Wally Bird is back in the council’s possession, and the community can once again appreciate this rare art piece.
“Wally Birds are an important part of the borough’s history, as many of the sculptures were crafted by the Martin brothers at their pottery in Southall.”
Jonathan Oates, archivist for the borough of Ealing, said: “It is great that yet another Martinware piece has been restored to its rightful place.”
In 2015, a Canadian collector paid £157,000 at auction for a Wally Bird caricature of the Victorina prime minister, Benjamin Disraeli.
However, as the pottery has increased in value, it has become more appealing to art thieves.
Sixteen pieces of Martin Brothers pottery were stolen during the break-in at Southall Library in May 2005, with a further 24 items taken in March 2007 from Pitzhanger Manor House.