The former PSG midfielder joined United on transfer deadline day at the end of last month.
Ex-United academy director Butt told manutd.com: "I've seen a bit of him last year and I think he's what we need.
"He's got legs and he's aggressive. Hopefully, he'll shore up that midfield. The one thing it is lacking, and it has got a lot of talent in there going forward, is we can be a little open when teams are on the counter-attack against us. So, hopefully, he'll make the difference."
On Ugarte being United's prime midfield pivot, Butt added: "I'm pretty sure that is the thought process behind why they brought him in.
"They want someone to do the dirty work and put in the work that people don't tend to like to do. But it's a very important job in front of the back four."