The 21-year-old heads back to Ashton Gate having spent the final two months of last season with the Robins.
Spence told the Hammers' official website: "It's a good opportunity for me, especially at this time. I have spoken to the manager and we both agree it is better I am playing games at this time.
"This loan move gives me a chance to do that and if I am called back, then I know I have been playing regularly.
"The manager at Bristol City knows me well and wanted me to come back down, so I am going to work hard and hopefully do well."
Spence signed a three-year contract with the Hammers earlier in the summer but new arrival Joey O'Brien is set to become Sam Allrdyce's first-choice right-back.