The deal breaks the previous Premier League record fee of £100m that Manchester City paid for Jack Grealish when he joined from Aston Villa in 2021.
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ESPN sources said Fernandez will sign a deal that runs through 2031. The 22-year-old impressed for Argentina as they won the 2022 World Cup and was named the Young Player of the Tournament.
ESPN reported on Monday that Fernandez had already agreed personal terms with Chelsea and was pushing the Portuguese club hard to reach an agreement with the Blues.
Benfica boss Roger Schmidt was not keen on seeing Fernandez leave, but had previously said their hands would be tied if a club paid the player’s release clause.
Fernandez moved from Argentine side River Plate to Benfica in 2022 and has played 29 times in all competitions, scoring four goals and grabbing seven assists.
Fernandez’s transfer takes Chelsea’s total outlay on players since last year’s takeover by an investment group led by Todd Boehly and Clearlake Capital to more than £500m.
Chelsea are 10th in the Premier League, 10 points adrift of a top-four spot. They next host local rivals Fulham on Friday.
Information from Reuters was used in this story.