The 19-year-old was about to run into the final six months of his deal but has penned a new deal tying him to Stamford Bridge until 2015.
AC Milan had hoped to convince the France Under 21 midfielder to turn his back on Chelsea.
Controversial capture: Kakuta (left) arrived at Chelsea from French club Lens
There had been doubts about whether he would be offered a new dealas the west London club look to cut the wage bill.
Kakuta's arrival at Chelsea was contested by Lens in 2007. The'tapping up' dispute led to Chelsea being banned from signing any newplayers until January 2011 when FIFA handed down their judgement inSeptember 2009.
However, the Court of Arbitation for Sport overturned the decision in February and cleared Chelsea of wrongdoing.
Eye on the future: Ancelotti
Chelsea's injury problems and the loss of Joe Cole, Michael Ballack and Deco over the summer have meant the 19-year-old has been deployed nine times by Carlo Ancelotti this season.
Ancelotti has earmarked Kakuta, Jeffrey Bruma and Josh McEachran as the future of the club and the Lille-born hopeful is glad to have penned a new deal.
'Since I signed for Chelsea when I was 16 all I was thinking about was to get to the first team,' said Kakuta.
'Now I have been playing a few times with the first team and I have signed for four and a half more years, I have to make a way for myself into the starting 11 and make my dream come true.
'The manager said to me it is the right time to play and I think for me it is as well. It's my job to do my best and try to play more often and show the coach that I am good enough to play in the team.'
Kakuta has featured in five of Chelsea's Champions League games so far and is keen to help the Blues' attempts to achieve success both in Europe and domestically, where they have dropped to fourth after a poor run of results.
Kakuta continued: 'It is a dream when you are young to play in the Champions League and I hope I will play more games.
'It is always good to play with players with more experience, you learn quicker and to improve quicker is good for our development.'
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