In exchange for Leddy, the Red Wings are sending forward Richard Panik and the 52nd pick in next week's NHL Draft to the Islanders.
Leddy, 30, has spent seven of his 11 season with the Islanders. A stay-at-home, left-shot defenceman, he had 31 points in 54 games last season while averaging 21:35 of ice time. Leddy has one more year on his contract and will earn $5.5 million next season before becoming an unrestricted free agent.
The Islanders were at risk of losing Leddy to the Kraken and are widely expected to protect defencemen Adam Pelech, Ryan Pulock and Scott Mayfield.
Panik was acquired by the Red Wings at the trade deadline alongside Jakob Vrana in the Anthony Mantha trade with the Washington Capitals. The 30-year-old had 13 points in 48 games with the Capitals and Red Wings last season. Sportsnet's Elliotte Friedman reports the Red Wings will retain 50 per cent of Panik's contract, which has two years remaining on it with a $2.75 million AAV.