Ljungberg, a 'designated player' under the same ruling that allowed LA Galaxy to sign David Beckham from Real Madrid, was sent to Chicago for a conditional selection in the 2011 or 2012 SuperDraft.
The 33-year-old Swede will join another designated player, Mexican international Nery Castillo, in Chicago.
"Freddie is an exceptional player, with world-class talent and we are thrilled to have him join the Chicago Fire," Chicago technical director Frank Klopas said in a statement.
"He is a player with an illustrious career and, as an attacking player, he will help us toward our goal of bringing the MLS Cup to Chicago."
Ljungberg, who played 75 times for his country, has not played for Seattle since July 4, having been sidelined by injury.
"I have been thinking long and hard about the next step in my career and I am extremely happy to become the newest member of the Chicago Fire," said the veteran Swede who joined the Sounders in October 2008.
Designated players are paid mainly outside of the team's salary cap.
(Writing by Mark Lamport-Stokes in Los Angeles; Editing by Steve Ginsburg)