"Manchester City Football Club today are pleased to announce that a new contract has been agreed with manager Roberto Mancini," City said on their website.
"The deal, which runs until the summer of 2017, follows the club's most successful season in more than four decades, which concluded in the most dramatic of circumstances in the team's thrilling 3-2 win over Queens Park Rangers in May this year."
City won the title in the most dramatic circumstances with added-time goals from Edin Dzeko and Sergio Aguero securing a last-gasp victory over Queens Park Rangers in their final game.
Mancini replaced Mark Hughes in December 2009 and led City to FA Cup success in 2011 before last season's title triumph when they lifted their first top-flight crown since 1968.
The 47-year-old Italian's success has been rewarded after a deal was reached following discussions between the parties which began as their triumphant league season ended.
"Manchester City is a fantastic football club, from the owner, chairman, board and the executive team, through to the players, staff and fans," said Mancini. "I am very much looking forward to the challenges and excitement ahead."
"I am delighted to be able to give all of my efforts to Manchester City for a further five years. The opportunity which exists to build on our recent success is enormous," said Mancini.
While City pipped arch rivals Manchester United on goal difference to claim the league title, their first Champions League campaign ended with a group-stage exit.
However, City have tied Mancini to a long-term contract in the hope that he can build on domestic success and deliver a first European trophy since the Cup Winners' Cup triumph of 1970.
City interim chief executive John MacBeath added: "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."
Mancini, who played for Bologna, Sampdoria and Lazio as well as representing Italy, has also managed Fiorentina, Lazio and Inter Milan and had recently been linked with the vacant Russia job.
