Chelsea sacked their Romanian striker Adrian Mutu after he tested positive for cocaine last month.
"Chelsea has terminated the contract of Adrian Mutu for gross misconduct," the English Premier League club said on Friday.
"The decision comes after the player's positive drugs test for cocaine and his admission that he took the drug."
Mutu, 25, faces a two-year ban from soccer. He is the second player to be sacked by Chelsea for cocaine abuse following the dismissal of Australian goalkeeper Mark Bosnich two years ago.
"We want to make clear that Chelsea has a zero tolerance policy towards drugs. This applies to both performance-enhancing drugs or so-called 'recreational' drugs. They have no place at our club or in sport," the club said in a statement.
"In coming to a decision on this case, Chelsea believed the club's social responsibility to its fans, players, employees and other stakeholders in football regarding drugs was more important than the major financial considerations to the company.
"Chelsea is actively considering all options in relation to any financial loss as a result of this case."
Mutu was one of the first signings of Chelsea' billionaire owner Roman Abramovich when he joined from Parma in August 2003 for 16 million pounds ($29.3 million).
He scored four goals in his first three games to make an immediate impact on the pitch and he admitted to loving London's nightlife.
His performances began to dip and by the end of last season he had fallen out with former manager Claudio Ranieri and was on the sidelines, where he remained under new boss Jose Mourinho who took over in the close season.
Earlier this month Muto denied taking cocaine but said he had taken "a substance to make me feel better".