The 33-year-old took a giant leap towards becoming Carlo Ancelotti's successor at the London club after quitting his job with the Portuguese and Europa League champions and activating what Porto said was a 15-million euro release clause.
Porto president Jorge Pinto da Costa said Chelsea had settled the bill, while the English club confirmed their interest in the young coach who worked as assistant to fans' favourite Jose Mourinho at Stamford Bridge in 2004 to 2007.
"We can at this time confirm our interest in him and hope to reach agreement with him on personal terms and make a further announcement in the near future," Chelsea said in a statement on their website.
Chelsea, whose Russian owner Roman Abramovich has made no secret of his desire to win the Champions League and has shown little patience with managers who have failed to do so, did not confirm whether they had paid the release clause.
"There was a contract with the coach that included a clause that said he could rescind without just cause, as he did in the letter he sent us, with a compensation of 15 million euros," Da Costa told reporters.
"Naturally for that rescinding to happen, there needed to be a letter saying he wanted to break the contract. And Chelsea, or the coach on behalf of Chelsea, with money from Chelsea, deposited in our bank account... the amount stipulated."
Villas-Boas, whose contract with Porto ran until 2013 and who last month said he was planning to stay there, joined the club in June last year and led them to a treble of Portuguese Premier League, Portugal Cup and Europa League.
"He has the ability to succeed at any club, like he did at Porto, and at a club that has no limits in its ambitions or economic problems I am absolutely certain he will have success at Chelsea and become a champion," Da Costa added.
Chelsea, on the verge of appointing their seventh manager since billionaire Abramovich took over the club in 2003, are very familiar with Villas Boas thanks to his time under the self-proclaimed 'Special One' Mourinho.
TACTICAL FLAIR
While he may not have Champions League success on his resume, unlike Mourinho or Ancelotti, Villas-Boas has rapidly developed into one of Europe's brightest young coaches after an unconventional route into the game.
His tactical flair was spotted by the late Bobby Robson, the experienced former England coach who first came into contact with him while in charge of Porto.
A keen 16-year-old student of the game, Villas-Boas wrote to Robson asking why he was not selecting striker Domingos.
Impressed by the teenager's passion, Robson helped him take coaching courses and introduced him to Mourinho who hired Villas-Boas as a scout on his appointment as Porto coach in 2002.
Villas-Boas also worked under Mourinho at Inter Milan, before helping Academica Coimbra avoid relegation from the Portuguese Premier League after starting his career as head coach at the club in October 2009.
He became the youngest coach ever to win a European club competition when Porto beat compatriots Braga to triumph in the Europa League last month.
His rampant Porto team also became the first side since 1978 to finish the Portuguese league season undefeated, clinching the title with a win at their rivals Benfica's Luz Stadium.
Porto said they had appointed Villas-Boas' assistant Vitor Pereira as head coach, with the 42-year-old signing a two-year contract.
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