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Gray, 24, was out of contract at Leicester at the end of the season and has signed for Leverkusen until June 2022 for a reported transfer fee of £2 million ($2.7 million).
Gray is Leverkusen's third signing this month after defenders Timothy Fosu-Mensah from Manchester City and Jeremie Frimpong from Celtic.
He will boost Leverkusen's options on the flanks alongside Jamaica winger Leon Bailey and French flyer Moussa Diaby.
"Demarai Gray is a tricky, very fast and assertive winger who will add extra life to our attacking play," said Leverkusen sporting director Simon Rolfes.
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"He is able to solve one-on-one situations at high speed and use his teammates well."
Gray, a former England Under-21 international, has only played 18 minutes in the Premier League this season and wants to establish himself at Leverkusen.
"I saw how Leverkusen attack, act aggressively and dictate the game through possession. I'll fit in well there," he said.
Under head coach Peter Bosz, Leverkusen were top of the Bundesliga in December.
However, they have dropped to fourth after Saturday's 1-0 defeat at RB Leipzig, their third loss in four games.
Gray was part of Leicester's 2016 Premier League-winning side.
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