The Argentine commits to a new deal, running until 2017, as the Premier League runner-up looks to avoid interest from La Liga giant Real Madrid materializing this summer.
As exclusively revealed by Goal in April, the Premier League side intended to tie the Argentine down to a new deal in order to ward off interest from Real Madrid.
The 24-year-old scored 17 goals in 40 games for the Etihad Stadium outfit in 2012-13, a slight dip in form from his 30-goal debut season, in which the last of his goals won the league title for City in dramatic fashion.
Aguero had pledged his future to the club on Friday, telling reporters that "there is no reason to go" despite a disappointing campaign that ended with manager Roberto Mancini's sacking.
His new contract runs through to the summer of 2017.