The Belgium winger left Atleti for the Chinese Super League in February 2018 but returned on an initial loan deal in January.
It was confirmed on Tuesday Atleti have now made Carrasco's signing permanent, with the 27-year-old penning a four-year deal at the Wanda Metropolitano.
[📝] @CarrascoY21 is a Red & White! ⚡— Atlético de Madrid (@atletienglish) September 8, 2020
🇧🇪 The Belgian signs a 4️⃣-year contract with Atleti after reaching a transfer agreement with Dalian Professional FC 🤩
🔴⚪ #AúpaAtleti pic.twitter.com/Q2gfOtJ6hA
Since linking back up with Diego Simeone's side, Carrasco scored once and provided four assists in 16 matches as Atleti secured Champions League football via a third-place finish in LaLiga.
During his first spell, Carrasco scored 23 times and added 17 assists in 124 games, while he has also netted six times in 41 appearances for his country.
Atleti are scheduled to face Granada in their 2020-21 season opener at the end of September.