Conor Gallagher will fly to Spain on Monday to proceed with a transfer to Atletico Madrid.
Chelsea accepted a deal in the region of £34 million from the La Liga club last week and could not find consensus with the player over new contract terms to keep him at Stamford Bridge.
The decision was made in the earlier hours of Monday morning.
Gallagher will hold further talks with Atletico to finalise personal terms and, all being well, undergo a medical.
The England international had been told he will only be a squad player under Enzo Maresca, with the new Blues boss favouring a possession-heavy style of play at Chelsea.
Chelsea accepted a larger bid from Aston Villa for Gallagher this summer, but he decided to reject a move to Villa Park and stay at Stamford Bridge. Spurs remain interested in Gallagher.
Chelsea would prefer to sell him to a club abroad rather than a Premier League rival.
Blues keen on Celtic’s O’Riley as potential Gallagher replacement
Chelsea are assessing potential replacements should Conor Gallagher leave the club.
Sky Sports News understands one of several options they are keen on is Matt O’Riley at Celtic.
O’Riley has been the subject of bids from Atalanta this summer, and he has further interest from other clubs in the Premier League and abroad.
Atletico Madrid made a bid for O’Riley in January.
When does the summer transfer window open and close?
The 2024 summer transfer window officially closes on August 30 at 11pm UK time in the Premier League and 11.30pm in Scotland.
The Premier League has brought forward Deadline Day to link up with the other major leagues in Europe. The closing dates were set following discussions with the leagues in England, Germany, Italy, Spain and France.