The Serbia international joined City from Lazio in July 2010 and enjoyed his most consistent season to date at the Etihad Stadium last term.
The 28-year-old edged ahead of Gael Clichy in the pecking order at left-back, complimenting his established attacking abilities with increasingly assured defensive work.
A free-kick specialist, Kolarov has 15 goals in 99 senior appearances for Manuel Pellegrini's team and the defender believes his improved form in 2013-14 was central to earning a new deal that will run through to 2018.
Kolarov told City's official website: "I am very happy and very proud of this new contract.
"I will give to this club probably the best stages of my football career and I am very happy that I continue with this club which feels now like my home.
"Last season I played a lot and I think I proved to people in the club that they can believe in me and the result was that I was offered a new contract and I was happy to sign."
Kolarov has two league titles and winners' medals from last season's League Cup and the 2011 FA Cup finals to show for his time in Manchester and now wants City to kick in to European success, with the club having flattered to deceive in three UEFA Champions League campaigns to date.
"When we won two trophies last season, I was happy with what we did and I think it's good for the club and for me that we are here now," he added.
"I think we can do a lot more things in the future. We've won everything in England and I think we can do a lot more in Europe. So we'll try to repeat what we did in England and try to win something in Europe. The most important thing in football is the result and I think we can do a lot more in the future."
