The attacking midfielder was attracting the attention of his former boss at Stamford Bridge Jose Mourinho, who is now in charge at Manchester United.
France giants PSG were also interested in the 27-year-old, who was the only player to shine in Mourinho’s disastrous final season.
Willian was being valued at around £50m because he had just two years left on his contract.
But his new deal, worth around £8m a year, will see his price tag soar and send a message to his suitors that he is going nowhere.
The Blues paid £30m for Willian when they signed him from Russian side Anzhi Makhachkala three years ago.