"Chechen and Terek president Ramzan Kadyrov has appointed Ruud Gullit the team's head coach," Terek said on their website.
"Ranzan Kadyrov also declared the task for Gullit - to qualify the club for European competition at the end of the coming 2011/12 season.
Terek, who finished 12th in the 16-team Premier League last year, turned to Gullit after failing to agree a contract with former Spain and Barcelona midfielder Victor Munoz.
Gullit, 48, had been out of coaching since quitting Major League Soccer club Los Angeles Galaxy for personal reasons in 2008.
His last job was working as an international embassador, campaigning for the joint Belgium-Netherlands 2018 World Cup bid.
Gullit, named World Player of the Year in 1987 and 1989, captained the Netherlands to the European Championship title in 1988 when they beat the Soviet Union in the final.
DUTCH GIANTS
The 48-year-old has also coached English Premier League sides Chelsea and Newcastle United along with Dutch giants Feyenoord.
Terek deputy president Haidar Alkhanov told reporters that Gullit signed an 18-month contract with the club from the capital of the Russian republic of Chechnya but refused to disclose financial details.
"We reached agreement about the conditions of the contract without any problems." Alkhanov said. "He was completely satisfied with the terms that we offered him.
"Gullit is a true world football star. He has experience of coaching top-class clubs like Chelsea and, I believe, will be very useful for our club."
Gullit, the 1987 European Player of the Year, is one of the most successful Dutch footballers.
He was part of the scintillating side that won the 1988 European Championship and at club level he helped AC Milan win the Champions League in 1989 and 1990.
