The Premier League champions are continuing their summer policy of tying their big-name players to long-term contracts.
In August alone Vincent Kompany, David Silva and Sergio Aguero put pen to paper, and Dzeko is pleased to join them. “I’m really happy here at City, it's a second home to me, so it was an easy decision to stay for the long term," he told the club's official website.
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"I knew from the beginning when I started here that I wanted to stay for a long time - I can't see any place better than here.
"I'm settled perfectly to life here, I know my teammates, the club, the team, very well and I feel like I can improve even more.
"Over the last three and a half years we’ve made history together but I feel like we are only at the start of something really special.
"There are still so many objectives and goals that I want to reach from my career in the game and I believe that I am in the perfect place to achieve them all.
"The fans have always shown so much faith in my ability and I feel so much love, both from supporters inside Manchester and from those all over the world."
Dzeko had looked set to leave the club this time last season following the arrivals of Stevan Jovetic and Alvaro Negredo.
But particularly in the second half of last season, Dzeko flourished under Manuel Pellegrini with goals in three of City's final four matches which helped to secure the Premier League title.