Real Madrid has loaned talented midfielder Sergio Canales to Spanish rival Valencia for the upcoming season.

Canales, who is playing for Spain at the Under-20 World Cup, was limited to 15 appearances under coach Jose Mourinho after joining from Racing Santander before the start of last season in a ?5 million ($7.2 million) deal.

Both clubs say on their respective websites the agreement includes a buy-out option. Other financial terms were not released.

Canales says Valencia is where he ''wants to play - it's a very important step that allows me to keep competing with football's elite.''

The move ensures the 20-year-old plays Champions League football as Valencia qualified for the group stages thanks to its third-place finish last season.