The Socceroo becomes the only Australian currently playing in England's top-flight and is likely to go straight into the Foxes team.
His fee eclipses the initial $14m Huddersfield paid Manchester City for Aaron Mooy in 2007.
It pushes Mark Viduka's $10m move from Celtic to Leeds in 2000 into third place.
"I'm delighted to join such a great football club and challenging myself in the Premier League is an opportunity that I couldn't turn down," Souttar said in a statement.
"There are world-class facilities here and a squad full of fantastic players so I can't wait to get started."
Souttar has agreed to a signed a five-and-a-half-year deal with Leicester after being linked with the club in recent days.
A transfer fee was agreed between the clubs mid-morning UK time but as the clock ticked towards the closure of the English transfer window at 11pm tension began to grow before official confirmation.
After the deadline had passed, the move was confirmed with the announcement coming with a social media reveal video of Souttar kitting up.
Socceroos used to be a familiar sight in England's elite - from Craig Johnston through to the likes of Viduka, Harry Kewell, Lucas Neill, Tim Cahill, Mark Schwarzer and Mile Jedinak.
But in recent years they have become more rare, though Mat Ryan had four seasons at Brighton - where he was briefly joined by Mooy - culminating in a spell on loan as Arsenal's back-up keeper in 2021.
There are three other Australians on the books of Premier League clubs but all have been sent out on loan.
Tyrese Francois, a 22-year-old midfielder born in Campbelltown, came off the bench in the 89th minute of Fulham's 0-0 draw with Wolves in August to make his Premier League debut, but is currently with Croatian club NHK Gorica.
Olyroos midfielder Caleb Watts has played in the top-flight for Southampton, but is currently turning out for tier-three Morecambe.
Garang Kuol joined Newcastle United at the start of January but was quickly sent on loan to Scottish club Hearts.
Souttar was born in Aberdeen - his brother John is a Scotland international – and was capped by the country at under-17 and under-19 level.
But his mum hails from Port Hedland in Western Australia and he has thrown in his lot with the Socceroos, making his debut in 2019 on his first visit down under.
The 24-year-old nearly missed out on the last year's World Cup after he tore his ACL playing for the Socceroos in November 2021 but he regained fitness just in time and produced a series of eye-catching performances as Australia reached the last 16.
The Foxes' next match is at Aston Villa on Saturday (Sunday AEDT) with a home debut marking England captain Harry Kane on Souttar's agenda for the following weekend.
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