The transient kinetics of reaction between carbon monoxide and an oxygen monolayer pre-adsorbed on palladium clusters supported on MgO(100), has been studied for various cluster sizes (4-15 nm), in the temperature range 120-400 degrees C, using molecular beam and mass spectrometry under ultrahigh vacuum. When the CO beam is opened, the CO2 production rate first increases instantaneously, and then increases slowly to its maximum, before decreasing to zero due to the lack of oxygen. The period of slow increase of the reaction rate, namely the induction period, appears at about 200 degrees C and becomes longer when temperature increases. Although it is not observed on Pd(111), this peculiar reaction kinetics does not depend on cluster size, and is attributed to a precursor state of CO chemisorption. The oxygen coverage at saturation is found equal to 0.4. At this high oxygen coverage, gaseous CO physisorbs above the oxygen adlayer. At high temperature, the precursor is more likely to desorb, which reduces its chemisorption probability, and thus the CO2 production rate. The temperature-dependant kinetics of CO adsorption and reaction with oxygen has been simulated thanks to a simple kinetic model accounting for the precursor mechanism.