There were concerns of Mancini being tempted away by the Russian FA.
City's interim chief executive officer John MacBeath said that success had only enhanced Mancini's pedigree.
"Roberto's managerial credentials have been well proven in Europe for many years," he said.
"And in leading a team which has won the FA Cup and an unforgettable Barclays Premier League title in successive seasons, his ability to manage in the English domestic game is also undisputed.
"This new agreement allows Roberto to focus on the challenge of guiding a team which is capable not only of defending the Premier League title, but one which can compete for European honours."