The highly-rated youngster was pinched by the Blues under new academy Elite Player Performance Plan guidelines. That allows a category one academy like Chelsea's to take their pick from a lower ranked category facility. Charlton's academy is category two.
Chelsea will have to pay a small compensation fee for Palmer, but Charlton academy bosses are thought to be fuming at having one of their brightest prospects pinched from under their noses.
Palmer has played for England under-17s, and is regarded as one of the brightest young players in his age group.
The 16-year-old made his first appearance in a Chelsea shirt on Saturday, when he featured in an under-18s defeat to Manchester United.
Charlton have one of the most productive academies in England, with Joe Gomez and Diego Poyet - Gus Poyet's son - among the top prospects currently on the books. Both are England youth internationals. And Callum Harriot, an 18-year-old Charlton academy product, is the latest to make the step up to Chris Powell's first team.
But Chelsea have a strong academy group of their own, with Ruben Loftus-Cheek one of their brightest talents. The Blues have also won two of the past three FA Youth Cups.
Palmer primarily operates in an attacking midfield role.