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The Blues last night wrapped up the £32m signing of Atletico Madrid striker Diego Costa, with the Spain international penning a five-year deal worth around £150,000-a-week.

And according to MARCA, Tiago will team-up with Costa at Chelsea after he rejected a new contract to stay at Atletico.

Tiago, 33, will rejoin the Blues - the club he left in 2005 after just one season - on a two-year deal and become manager Jose Mourinho's third signing of the summer following the arrivals of Costa and Cesc Fabregas.

The former Portugal international helped Atletico clinch the La Liga title for the first time since 1996 last season as well as reach the Champions League final where they were defeated 4-1 by city rivals Real Madrid.

Chelsea are also closing in on their third capture from the Spanish champions having activated the £20m release clause of left-back Filipe Luis.

Mourinho wants Luis to fill the void left by the departing Ashley Cole, who was officially released yesterday after eight years at Chelsea.

Cole joined Frank Lampard and Samuel Eto'o on the club's released players list, however veteran goalkeeper Mark Schwarzer has been rewarded with a new one-year deal.