John Terry has reached an agreement in principle to stay at Chelsea. The club will make an announcement in the next few days trumpeting the England captain’s decision to snub repeated advances from Manchester City before opening detailed talks on an improved contract when they return to London next week.

Terry has discussed his position with Chelsea executives on several occasions over the past few days, including a meeting with Roman Abramovich and Peter Kenyon, the owner and chief executive respectively, in Pasadena, California, on Tuesday, and been convinced that the club still share his ambition to compete for honours on all fronts.

The defender had grown concerned at the club’s failure to sign big-name players this summer and expressed intrigue at developments at City, but with Chelsea refusing to entertain the prospect of a deal he has no appetite to force through an acrimonious transfer.

His team-mates have been informed of the 28-year-old’s willingness to stay after Frank Lampard cast doubt on his future and an announcement is expected imminently. “John is our captain and we need him,” Didier Drogba, the striker, said yesterday. “We know he’s going to stay and help us to win more trophies.”

Terry’s reward for committing his future to Chelsea is likely to be a new contract, details of which will be discussed next week and should be finalised before the start of the season. He will not get the world record £200,000-a-week contract that was on offer from City, but will receive a significant pay rise, taking his weekly earnings to £150,000, making him the highest paid player at Stamford Bridge. Terry will be relieved to have the issue resolved before the start of a season that should culminate in him leading England at the World Cup finals.

Chelsea’s planned announcement will come as a blow to City, who have repeatedly claimed that Terry wanted to join them. Mark Hughes, the manager, went public with the club’s transfer plans last week by claiming that Terry was seeking a fresh challenge after spending his entire career at Chelsea, while the episode does nothing to enhance the reputation of Garry Cook, the chief executive, who has also failed to complete the signings of Kaká and Samuel Eto’o.

City have made significant progress in the transfer market this summer, with Gareth Barry, Roque Santa Cruz, Carlos Tévez and Emmanuel Adebayor moving to the club for a combined total of £80 million, but the biggest names remain elusive.

Chelsea, in contrast, will take heart from Terry’s renewed commitment after a difficult summer during which they have yet to significantly strengthen their squad. The club’s board is aware that they can no longer compete with City, Real Madrid or even Manchester United when it comes to transfer fees so will be pleased to discover that the club’s history of recent success still counts for something.

Carlo Ancelotti will be more relieved than most as he put his reputation on the line by pledging on his first day in charge three weeks ago that Terry would stay.

The Italian’s promising start as manager continued when Chelsea beat Inter Milan 2-0 in the World Football Challenge on Tuesday night, after which he emphasised his belief that his side could win the Premier League this season. Chelsea again played a 4-4-2 diamond formation against Inter, with Ancelotti vowing to make the team more attractive to watch.

“I think I can win the Premier League for Chelsea,” he said. “But not only victory is important — I want to put entertainment into the team. Our style of play is very important. To put creativity into the team is not just about quality players. We need a clear idea of how we’re going to play and against Inter we had that.”