Nicknamed "The Cat" for his quick reflexes in goal, Bonetti made 729 appearances for the London club in two stints between 1960 and 1979 -- second on the club's all-time appearances list behind former defender Ron Harris.
"Chelsea football club is hugely saddened to announce the passing today of one of our indisputably all-time great players, Peter Bonetti," the club said in a statement.
"Our former goalkeeper had been suffering from long-term illness. All at Chelsea wish to send our heartfelt and deepest condolences to Peter's family and friends."
Bonetti kept over 200 clean sheets for the club over two decades and also made 21 appearances for North American Soccer League side St. Louis.
He made seven international appearances for England and was a back-up goalkeeper to Gordon Banks in the squad that won the 1966 World Cup but he never played a match in the tournament.
However, he was blamed for the quarterfinal loss at the 1970 World Cup when England, leading 2-0 in the second half, eventually lost 3-2 to West Germany. He had come into the side after Banks pulled out due to food poisoning.
"Our thoughts go out to the friends and family of former City goalkeeping coach Peter Bonetti along with everyone at @ChelseaFC following sad news of his passing," Manchester City said in a tweet.
Petr Cech, who would go on to break some of Bonetti's records at Chelsea, mourned his death on Twitter.
"Really sad news for everyone from @ChelseaFC family," he said. "R.I.P. "The Cat"... Legend."
Former England captain and television presenter Gary Lineker described Bonetti as a "terrific goalkeeper" for the club.
"So sorry to hear that Peter Bonetti has passed away," he said. "Got to know him when he was England's goalkeeping coach and he was a delightful bloke."