The Ghanaian midfielder has put pen to paper on a new deal after impressing in his first two seasons following his move from city rival Inter.
Following the sacking of Clarence Seedorf and appointment of Filippo Inzaghi as coach, the club has opted to retain the services of the Ghanaian as it prepares for next season.
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The midfielder initially joined the Rossoneri on loan from city rival Inter in January 2012 before making a permanent move in the summer of that year.
The 29-year-old, who has also played for Udinese and Portsmouth, didn't have a great first season after joining on a permanent basis, having been ruled out for a large part of it with injury. However, he became a regular starter in 2013-14 as the side narrowly missed out on a European spot.
His performances have been enough to convince the club to keep him on and he has signed for another two years.
A statement on the club's official website read: "AC Milan announces that Sulley Muntari has renewed his contract to June 30, 2016."
Muntari is currently playing in the 2014 World Cup with Ghana, which faces Germany in its next match on Saturday.