Gallagher is highly-regarded by Blues boss Frank Lampard and enjoyed two spells on loan in the Championship last season, firstly with Charlton and then almost helping Swansea to promotion before losing in the play-offs.
With the likes of Timo Werner and Hakim Ziyech already joining and Kai Havertz fully expected to follow, Gallagher's opportunities would have been limited in the new season, and so he has taken the change to gain valuable Premier League experience.
The likes of Leeds United, Fulham and Aston Villa were also thought to be in the running for the services of the 20-year-old, and it is understood that there will be no option to buy in the deal.
It is unlikely that Gallagher will be the last Chelsea player to leave on loan as Lampard completely transforms his squad from last season.
Other fringe players such as Ethan Ampadu and even first-teamers such as Calum Hudson-Odoi could be in line for a move away for the season.