Muscat had attracted interest from outside New Zealand after continuously showcasing his versatility across the backline and defence during his six years in Wellington.
But the Maltese international has shunned interest from rival clubs to stick with the Phoenix.
"There was interest from other clubs but I've always said the Phoenix comes first," Muscat said.
"I am happy here and grateful for the chance the Phoenix gave me and for everything they have done for me over the last five years.
"The arrival of Ernie Merrick also made the decision easy as he has been a breath of fresh air."
Muscat has become a key figure for the Wellington-based outfit after he was plucked from the Victorian Premier League by former coach Ricki Herbert.
The 29-year-old has gone on to make 129 appearances for the Phoenix, including 10 under Ernie Merrick this season."This team has a number of leaders from the front and Manny is one of those," Merrick said.
"He doesn't take a step back from anything, and has the ability to predict play, to anticipate and to make crucial tackles. Manny rarely comes out of a 50-50 challenge without the ball.
"He also picks his time to go forward and set up chances for the strikers.
"Manny is important for the future of the club.
"We have now got a number of young players and he is one of the leadership group that will help them become first team players.
"There is no doubt about Manny's character and commitment to the club and I can even see him staying for the next four years!"