The Italian, whose contract was set to expire next summer, guided City to win the Premier League last season – the club’s first title win in 44 years.
Confirming the news on the club’s website, a statement said: “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.”
Mancini, who had been linked with the vacant job as Russia manager, began discussions on a new deal at the end of last season and has committed to a long-term future at the Etihad Stadium.
“Manchester City is a fantastic football club, from the owner, chairman, Board and the executive team, through to the players, staff and fans. I am very much looking forward to the challenges and excitement ahead,” the Italian said.