Ferrari's announcement came minutes after confirmation of Fernando Alonso's departure from the team after a five-year spell in which the Spaniard ultimately failed to deliver a world championship title.
The last time the 'Scuderia' topped the drivers' standings was in 2007 when Raikkonen, in his previous spell with the team, triumphed before quitting the sport to test his skills in rallying.
Since then, the 'Prancing Horse' and the iconic red Ferrari cars have been playing catch-up to the Renault engines that have fired Red Bull and Vettel to four consecutive titles in the drivers' and constructors' standings.
Vettel currently sits fourth in the drivers' standings, 158 points behind Britain's Lewis Hamilton ahead of the final race of the season at Abu Dhabi.
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Ferrari team principal Marco Mattiacci believes Vettel's "youthfulness and experience" will make him an "invaluable asset" to the team as they look to end their seven-year title wait.
"Scuderia Ferrari has decided to put its faith in the youngest multiple champion in the history of Formula One," Mattiacci said.
"In Formula One terms, Sebastian Vettel is a unique combination of youthfulness and experience and he brings with him that sense of team spirit which will prove invaluable when, together with Kimi, they tackle the challenges awaiting us, as we aim to be front runners again as soon as possible."