The experienced midfielder has snubbed the advances of several clubs around Europe to remain with Diego Simeone's men as they embark on their Liga title defense.
Out-of-contract midfielder Tiago has re-signed with Atletico Madrid after opting against leaving the Spanish champion.
The Portuguese's previous deal expired at the end of June and he had been strongly linked with a move back to Chelsea to work under former boss Jose Mourinho.
But, having considered his options, he has decided not to join the exodus from the Vicente Calderon this summer and penned a two-year deal.
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The 33-year-old is now looking forward to repeating last season's La Liga triumph, telling the club's official website: "I felt proud because we'd had an incredible season, but I thought it was time to close a cycle. I had the opportunity to play in various international leagues and I took some time to assess the various options during the summer, but at the time of taking the final decision, it was clear to me that Atleti was the only right choice.
"During these weeks many false things have been said about me, but that doesn't change anything. Since the season ended, I had not completely forgotten Atleti nor had the club completely forgotten about me. The boss (Diego Simeone) always left the door open for me and now I'm very happy because I know that I've made the right choice.
"I want to thank the club very much for waiting for me and for offering me the opportunity to stay here. I look forward to helping the team in every way I can."
Tiago's decision will be a relief to Simeone, who has lost leading scorer Diego Costa (Chelsea), David Villa (New York City), Filipe Luis (Chelsea) and loanee Thibaut Courtois (Chelsea) since the end of last season.
Tiago will now link up with his teammates at Atletico's preseason training camp in Segovia before the club opens its competitive campaign against city rival Real Madrid in the first leg of the Spanish Supercopa on August 19.