The Spain midfielder’s new deal runs until the summer of 2017, the Barclays Premier League champions announced on their website.
Silva, 26, joined City from Valencia in July 2010 and last season helped the club win the league title for the first time since 1968.
The world and European champion is the latest player to pledge his long-term future to City, following in the footsteps of England keeper Joe Hart and Belgium and club captain Vincent Kompany.
Speaking about his new deal, Silva said: "I’m very pleased because I’ve been here for two years now and I feel very happy here at the club, in the city and with all the people.
"I’m delighted to be extending my contract and being here really does feel just like home for me.
"We’ve won the Premier League title and two other trophies too, and the team is growing and we are now aiming at the Champions League and so that also is another reason to want to stay here and try and win it.
"As I said, I feel very comfortable here and I want to try and win trophies like those."
Silva, who has already made more than 70 appearances for City, won a hat-trick of player of the month awards in his first season at the club.
He was also runner-up in last season’s Player of the Year awards as voted by his peers.
The Spaniard revealed the support he has received from the fans encouraged him to sign a new deal, and he is already setting his sights on more silverware after helping the club to the league title last season following on from their FA Cup win.
"These last two years have gone very well and so let’s hope that the next five go as well or even better," Silva said.
"The fans have always given me their support since I arrived here, and recently they’ve been wanting me to sign, so hopefully this goes someway to thanking them for the affection they’ve shown towards me, something which also helped me decide to put pen to paper."
Silva also tasted success in the summer with Spain, as he scored in the final of the European Championship against Italy and was named in the team of the tournament by UEFA.
The news of his new deal is a timely boost ahead of City’s opening Champions League fixture against Real Madrid at the Bernabeu Tuesday night.