Cagliari said Ranieri’s contract would run until June 2025.
The 71-year-old Italian coach became famous in England following he led Leicester City to win the Premier League title in 2016, but he failed in his mission with Watford, as the team got only seven points in three months before Ranieri left his post last January.
Coach Ranieri has previously led several other clubs in Italy, including Juventus, Roma and Inter Milan, in addition to clubs in Spain and France.
Cagliari is currently 14th in the second division, following being relegated last season.
