Former Chelsea coach Ranieri emerged as the new favourite on Monday afternoon and his appointment was confirmed soon after by the Foxes.
“I’m so glad to be here in a club with such a great tradition as Leicester City,” the 63-year-old said.
“I’ve worked at many great clubs in many top leagues but since I left Chelsea I have dreamt of another chance to work in the best league in the world again.
“I wish to thank the owner, his son and all the executives of the club for the opportunity they are giving me. Now I’ve only one way for returning their trust: squeeze all my energies to getting the best results for the team.”
Leicester vice-chairman Aiyawatt Srivaddhanaprabha said: “It is my great pleasure to welcome Claudio – a man of remarkable experience and knowledge that will lead us into the next phase of our long-term plan for Leicester City.
“His achievements in the game, his knowledge of English football and his record of successfully coaching some of the world’s finest players made him the outstanding candidate for the job and his ambitions for the future reflect our own.
“To have attracted one of the world’s elite managers speaks volumes both for the progress Leicester City has made in recent years and for the potential that remains for the club’s long-term development.”
Ranieri was Chelsea boss for almost four years until he was replaced by Jose Mourinho in 2004, and he has since managed Roma, Juventus and Inter in Italy and Monaco in France’s Ligue 1.
Leicester had been linked with Guus Hiddink and Martin O’Neill as they sought a replacement for Nigel Pearson who they sacked last month.
Despite guiding Leicester to safety, Pearson was fired shortly after his son James was sacked along with two other players, following a racist sex tape filmed on the post-season tour of Thailand.
Ranieri will be considered a gamble, however, after Leicester’s remarkable finish to the season in which they won seven of their final nine games, with the appointment called “uninspired” by club hero Gary Lineker.
The job looked like it was going to former Foxes favourite O’Neill, but it is understood they hit a snag over his release from his job as Republic of Ireland coach, while former Man United goalkeeper Peter Schmeichel – father of Leicester No 1 Kasper – also emerged as a shock target on Sunday.