The Spanish playmaker, who had two years remaining on his old deal, has penned a five-year contract which will keep him at the Etihad Stadium until 2017.
It is believed that Silva will earn £200,00-a-week and the former Valencia man is thrilled to commit himself to the City cause.
"I'm very pleased," he told the club's official website.
"I've been here for two years now and I feel very happy here at the club, in the city and with all the people.
"So now I'm delighted to be extending my contract and being here really does feel just like home for me.
"We've won the Premier League title and two other trophies too, and the team is growing and we are now aiming at the Champions League and so that also is another reason to want to stay here and try and win it.
"As I said, I feel very comfortable here and I want to try and win trophies like those.
"These last two years have gone very well and so let's hope that the next five go as well or even better.
"The fans have always given me their support since I arrived here, and recently they've been wanting me to sign, so hopefully this goes someway to thanking them for the affection they've shown towards me, something which also helped me decide to put pen to paper."