Tottenham Hotspur and Chelsea were among those believed to be keeping a close eye on the 20-year-old playmaker.
He has, however, taken the decision to commit himself to his Spanish employers, with a three-year extension including a €35million (£30m) buyout clause.
"It's a big step for me and for Malaga," said Isco.
"I'm grateful because they brought me to the city.
"I have trust in this team and I think we will continue improving this year, and that's good for me and for the club.
"I'm happy to have renewed. What happens in the future, nobody knows. Nobody has contacted me, these are rumours and run every day. It isn't time to talk about it now."
Malaga sporting director Mario Husillos is delighted to see Isco put pen to paper, as he admits formal approaches had been made.
He said: "The player has always been very clear that the only option was to stay at Malaga.
"There have been offers from other clubs, but the main thing for me is that he continues in Malaga."