Chairman Steve Sharp's threat to resign after being overruled by the Eels' board in his push to appoint Arthur in favour of Jason Taylor has paid off.
The three-time premiership winner had told Arthur the job was his if he wanted it earlier this month after interviewing Test coach Tim Sheens and Brian Smith and was furious when he was outvoted 3-2 last week.
But in a dramatic last-ditch attempt to convince the board on Tuesday night, Sharp was successful with the club opting for Arthur after telling Taylor the job was his.
Taylor was still waiting to hear on Tuesday night if his position had been rubber-stamped after agreeing in principle to a two-year contract.
Arthur was a Parramatta junior and has previously worked at the club as an assistant to Stephen Kearney and then taking over in a temporary capacity when the Kiwi coach was sacked late in the 2012 season.
He managed to win two of his six games, beating Brisbane and the Sydney Roosters and was very popular with the players.
The former Melbourne Storm assistant has spent this season working as Geoff Toovey's No.2 and helped the Sea Eagles reach the grand final.
"To return as a head coach in an area and a club where I played football as a young man is extremely humbling and very exciting," Arthur said.
"I have full confidence in the playing roster for next year, as well as the people at the Parramatta Eels to get this club moving in the right direction."
Eels CEO Scott Seward has lauded the appointment as the start of a new era for the club.
"This has been a thorough process and both myself and the PNRL Board are incredibly satisfied with this result," Seward said.
Taylor will now remain at the Sydney Roosters where he's the club's attack coach.
The 42-year-old has many admirers from his time at the Eels in 2006 when he guided the team into the finals after Smith departed midway through the season.
Taylor moved to South Sydney but left under a cloud in 2009 after a mad Monday incident involving David Fa'aologo that left the him with a black eye.