Reading parted company with former Manchester United and Dutch defender Stam earlier this week and moved quickly to appoint the former Swansea boss, with only three points separating the club from the relegation zone.
Chief executive Ron Gourlay said he was pleased to bring in a coach with experience of working at the likes of Real Madrid and Bayern Munich.
“I am delighted to have secured the services of a hugely experienced forward-thinking manager like Paul, who I have personally worked alongside during our time spent at Chelsea,” he said.
“Not only has he coached at some of the greatest clubs in Europe, winning trophies, league titles and European honours and working with some of the greatest players in the world, fundamentally he also has a rich understanding of English football having managed in both the Championship and the Premier League in recent years.
“Now, everyone at Reading Football Club is fully behind Paul and his squad of players as, together, we initially set our sights on an eight-game battle and continue to strive to take this club forward.”
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