The Spanish club confirmed the details on their website on Monday morning, just two days after AC Milan agreed to sign the 30-year-old striker from Premier League leaders Chelsea.
Torres has spent the first half of the season on loan in Milan with the deal set to be ratified on January 5 when the Italian transfer window opens.
Torres left Atletico for Liverpool in July 2007 and enjoyed three and a half productive seasons on Merseyside before leaving for Stamford Bridge.
He moved to Serie A during last summer with Chelsea and Milan agreeing on Saturday to make the switch permanent, which paved the way for Torres to be loaned to Atletico.
The deal is subject to Torres passing a medical.