The former Celtic and Barcelona striker had resigned from his position as the head coach of Swedish side Falkenberg earlier today.
There were reports linking him with the managerial vacancy at IFK Gothenburg, but he has instead signed a three-year contract with his hometown club.
"It's a step in the right direction for my football career," Larsson told reporters. "I had no doubts when they asked me."
Larsson had two spells at Helsingborg during his playing career and helped the club to win the Swedish Cup in 2006.