Ancelotti, who has long been linked with the Stamford Bridge post, left AC Milan by mutual consent on Sunday.
Former Champions League winner Ancelotti has agreed a three-year contract with the Blues, believed to be worth 6.5 million pounds a year (7.4 million euros), and will officially take charge on July 1.A statement on the club´s website confirmed: "Carlo was the outstanding candidate for the job.
"He has proved over a long period his ability to build teams that challenged for, and have been successful in, major domestic and European competitions.
"He also had a highly successful playing career in those competitions and therefore brings unparalleled all round experience to the job."
Ancelotti´s appointment comes a year after the Italian first spoke to Chelsea owner Roman Abramovich about the job.
The 49-year-old wrote in his recent autobiography that when he met Abramovich after former Blues boss Avram Grant was sacked, the Russian billionaire admitted he wanted a team with more ´personality´.
Ancelotti is attractive to Abramovich after winning two Champions League titles with Milan in 2003 and 2007 and now he will get the chance to fulfil Abramovich´s wish for a more entertaining team who can finally succeed in Europe´s elite club competition.
He is likely to be given a substantial transfer kitty, with bids for Bayern Munich winger Franck Ribery, Milan midfielder Andrea Pirlo, Valencia striker David Villa and CSKA Moscow winger Yuri Zhirkov all on the cards.
Ancelotti, who also won the Italian title with Milan in 2004, has previously coached at Reggiana, Parma and Juventus.
His track record of success dates back to his playing days when he also won two league titles and two European Cups with Milan.
He becomes the fifth Chelsea manager in 21 months following Jose Mourinho, Grant, Luiz Felipe Scolari and Hiddink.
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