Varela, who is a Uruguayan right-back, has signed for the club from Atletico Penarol for a fee that is rumoured to be around £1million up front, with a further £450k added dependent on first-team appearances.
The 20-year-old had a trial at Carrington Training Complex last season and impressed during his two-weeks in Manchester. The Uruguayan completed his medical on Friday morning with no complications and paper work was complete in the afternoon.
The defender has only made one appearance for Penarol and has earned nine caps for Uruguay’s Under-20 side.
Varela has now flown out direct to Turkey to meet up with the Uraguay under-2o squad for the Under-20 World Championships, which runs from 21 June to 13 July.
Penarol head coach Jorge Da Silva believes the youngster has earned the move.
“This is what he deserves. It is a shame to see him go but you can’t deny him the opportunity to join a club like this.”