The U’s have reportedly beaten fellow Sky Bet Championship sides Bristol City, Portsmouth and Sunderland to sign Nelson, who is understood to have been the club’s main target at centre half this summer.
Adding a central defender has been a key priority for United in recent weeks, with 20-year-old Nelson now filling that void.
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He spent the first half of the 2022/23 season on loan with Rochdale in Sky Bet League Two, making 12 appearances, before a switch to Doncaster Rovers for the second half of the campaign.
Nelson played 15 times in League Two for the Keepmoat Stadium outfit.
He then featured nine times for the Foxes first team last season, and scored once, in a 2-1 defeat at home to Queens Park Rangers.
Leicester’s promotion to the Premier League will clearly limit his opportunities though, and a loan move was sought.
Nelson told the U’s club website: “I’m really excited for what’s to come this season and I think it will be a great experience.
“It’s such a great opportunity and when I spoke to the manager, I felt it was the right move for me.
“I felt the energy and excitement around the club and it’s one that is striving to go places, and this is what drew me to signing.”
Head coach Des Buckingham added: “Ben is such an exciting player to bring to the football club.
“He is young, hungry, ambitious, and full of talent, and I look forward to adding him to our group to see how he can develop.
“Working with young players that have this ability and attitude is a part of the job I extremely enjoy, and I believe we have the right environment for him here at our club to flourish and progress.
“Ben has all of the qualities of a modern-day defender, and we feel he will fit in perfectly to our system and to our culture.”
Head of football operations Ed Waldron said: “Ben is one of the most highly-rated players in his position in the country.
“We have worked extremely hard on securing his services over a number of months and we are delighted that he has decided to choose our club.
“To be trusted with his development is a fantastic reflection on what we are doing here, and we hope we can get the best out of him this season.
“We look forward to playing a part in his development, and we are all excited to see how he will perform for Oxford United.”