The Blues have been able to land the Croatia midfielder for a reported £40.3million despite their transfer ban – because the 25-year-old was already registered to the club.
He was due to return to the Bernabeu today, after which point the Blues could no longer buy him, but he has signed a five-year deal to extend his stay.
Kovacic said: “I really enjoyed my season on loan with Chelsea, I feel comfortable at the club and like London and the Premier League very much. I am very happy to be able to join permanently.
“We had a successful year, winning the Europa League and I hope I can make a big contribution in the coming seasons.”
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