The South American striker, who had plied his trade in Uruguay, Italy and UAE, had also represented NorthEast United FC last season and in his 13 appearances for NEUFC scored five goals.
Announcing the signing, FC Pune City CEO Gaurav Modwel sounded upbeat with Alfaro's addition to his side.
"Alfaro is a forward with a penchant for finding back of the net. He is adept to lead line of attack for the team and his game awareness is something that we were very impressed with. I wish him all the best for his new stint and welcome him to FC Pune City," Modwel said.
Alfaro began his professional career with Uruguay's leading national premier division club Liverpool FC in 2006.
After being the top-scorer at his club for two consecutive seasons, Alfaro got the national team call against Italy in a friendly match in 2011. This game brought him attention from Italian club Lazio.
Alfaro, after spending three seasons with Lazio, had a season-long stint both in and back home with Liverpool FC in 2014-15 where they won the Segunda Division title.
FC Pune City's head coach Antonio Habas said, "Alfaro is a complete player who we feel is rightly suited the style of football which we at FC Pune City like to play, that is attacking brand. He is very smart in making attacking moves and is also solid in defence when needed and I'm sure that's going to be an asset to the team."
"It was a good season in ISL last year and it's time for me to find a new challenge. FC Pune City has good plans in place and I hope my stint with them is fruitful and I can make an indelible impression on the fans, especially the Orange Army," said Alfaro.