The centre-back has penned a lucrative deal with the Blues, which could see the 28-year-old end his career in West London.
Terry was a target of Manchester City this summer and the Eastlands outfit saw bids rejected before turning their attention to Kolo Toure and Joleon Lescott.
It was suggested that Terry was considering his future with Chelsea amidst City's interest, but player and club have dismissed the rumours.
An official statement read: "Chelsea is delighted to confirm that John Terry has signed a five-year contact that keeps him at the club until the end of the 2013/14 season.
"This reaffirms both John's and Chelsea's long-stated desire for John to be at Stamford Bridge for the rest of his career."
The centre-back is now understood to be the highest earner at Stamford Bridge, overtaking Frank Lampard and Michael Ballack.
Chelsea have made an excellent start to the season and, having already won the Community Shield under new boss Carlo Ancelotti, boast a 100 per cent record in this season's Premier League.
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