The popular Croatian had originally been linked with a move to Tottenham, but decided to stay with City after a heart-to-heart with manager Mark Hughes.
A delighted Mark Hughes said, "I am a huge admirer of Vedran. He is a top class player with a bright future ahead of him and I am delighted that he continues to be a part of our plans at Manchester City.
"It is a real boost for everyone at the Club. Vedran is a great lad and I am really looking forward to working with him over the coming seasons."
The player, along with the rest of the first team will report for training tomorrow as the manager and squad prepare for the Thursday night’s game against FC Midtjylland in the second qualifying round of the UEFA Cup.
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Get in there !