The Argentina international striker, who has scored 47 goals from just 69 starts for City, has put pen to paper on a fresh deal which extends his existing contract with the club for a further year.
Club record signing Aguero joined City from Atletico Madrid in 2011 and scored the last-gasp winning goal against QPR that sealed the 2011/12 Premier League title.
He told the club's official website: "I'm very happy at City and I feel very appreciated. It's been barely two years since I've arrived and sometimes I feel like I've been here for all my life.
"I have a fantastic relationship with the fans, and that always reminds me of our title and that goal against QPR. I can never forget that moment.
"Now I am looking forward to next season and pushing hard to win the title again."
Aguero had been linked with a move back to Spain, with Real Madrid believed to be interested in signing the striker.