The Italian, who had been linked with the vacant job as Russia boss, began discussions on a new deal at the end of last season and has committed to a long-term future at the Etihad Stadium.
A club statement read: "Manchester City Football Club today are pleased to announce that a new contract has been agreed with manager Roberto Mancini.
"The deal, which runs until the summer of 2017, follows the club's most successful season in more than four decades, which concluded in the most dramatic of circumstances in the team's thrilling 3-2 win over Queens Park Rangers in May this year."
Support the USA national team with an official 2013 Centennial soccer jersey from Nike. Its Official.
Barcelona will wear this new home soccer jersey next season. They also have a new away jersey. Get them both.
The Nike Hypervenom is the latest cleat silo from Nike. It will change your game and is worn by the game's top players.
Germany is one of the top teams ever and they will play the US on Sunday.
Manchester City will try and win back the Premier League title with this new soccer jersey from Nike!
England will debut their new away jersey against Brazil at the Maracana Stadium on Sunday. Get in the Gear
The adidas Nitrocharge is the most talked about new cleat in years. It was released on May 15 and will take your pitch by storm.
Neymar's move from Santos to Barcelona is no doubt the biggest summer transfer.
Jamaica is in need of a win against the U.S. Get the jersey of the Reggae Boyz.
The USA will wear their blue away jersey against Jamaica in their World Cup qualifier on Friday night.