The former Chelsea man joined the club's Premier League title rivals on loan in August, having signed a contract with soon-to-be MLS side New York City,
The initial deal stated that Lampard would return to the United States in January, ahead of the start of the MLS campaign in March.
However, the former England international has proven a useful addition for Manuel Pellegrini this term, with the Chilean stating his eagerness to keep the 36-year-old.
Pellegrini also stated on Wednesday that Lampard was in the squad list for Thursday's visit of Sunderland.
And a subsequent statement from the club read: "Manchester City can confirm that it has extended Frank Lampard’s contract up to the end of Manchester City’s season, enabling his continued participation in both domestic and European campaigns."
Lampard has scored six goals in 17 appearances for City, including a late equaliser against former club Chelsea in September's 1-1 draw at the Etihad Stadium.
He will now seek to deny his old team-mates the Premier League title by helping City claw back a three-point deficit on Jose Mourinho's leaders over the second half of the season.
New York City released a statement of their own, announcing that Lampard's "exact starting date with New York City FC will be confirmed as the EPL and MLS seasons unfold".
Claudio Reyna, New York's director of football, said: "Frank is a star and it is no surprise that Manchester City is rewarded by his contributions on the field every single day.
"He is eager to get to New York once his commitment ends in England and will be available to play on arrival as a permanent member of the squad given he will come to us having played at the highest level."
