West Ham will pay a further £250,000 if they avoid relegation this season.
Quashie has signed a three-and-a-half year deal with the Hammers.
West Ham manager Alan Curbishley told the club’s website: “We’ve signed Nigel because he is an experienced player who will add competition to our central midfield positions.”
He added: “I have not promised him anything in terms of first team football – he will have to earn it like the rest of the players – but he brings vast experience to the club and has shown me that he is eager and hungry to do everything he can to help us.
“I want to reiterate that new players coming in doesn’t mean I’ve got to let people go.
“The competition for places is a factor that will be important to us as we fight to move up the table, and it’s up to every member of the squad to prove that they deserve to be in the starting line-up.”