The defender, who was voted Etihad Player of the Year for 2012/13, joined City in 2008 from Espanyol and has gone on to make 175 appearances for the club.
"I have been here for five years and it feels like home. Signing a contract extension with the club makes me feel very happy," Zabaleta said.
"I feel great here, I like the Premiership, and I think Manchester City are one of the clubs looking for success in the future. It is a club that is very well-organised and when you see that everything works well you want to be here."
The 28-year-old Argentina international agreed the new deal on the eve of City's Premier League opener against Newcastle.
Zabaleta added: "I think we have got a great squad, fantastic players and hopefully we can win something this year.
"I am sure the fans will respond very well as always. They are a big support for the team week in week out, and hopefully at the end of the season the fans and players can celebrate with a trophy."