Nathaniel Chalobah will remain on loan at Watford until the end of the season.
Confirmation the 18-year-old, who has an enjoyed an impressive first half of the season for the Hornets, is not a surprise after Gianfranco Zola told the Watford Observer on Monday that "it looks like" the midfielder would stay at Vicarage Road for the remainder of the campaign.
The paperwork has now been completed and the England Under-21 player is also available to play for Watford in their FA Cup third round tie at Manchester City on Saturday.
Zola told Watford's official website: "It's great news for us. He has become an important player for us since he came to the club.
"His performances have been getting better and better so we are delighted Chelsea have decided to leave him here.
"It's good for Nathaniel and it's also good for Chelsea because he is getting a lot of benefit from this experience.
"It is a huge boost because if we want to keep improving and chasing the teams in front of us we need to have good players and Nathaniel is one of them."