The Italy international had been tipped to part company with the Serie A giants, with Manchester City among those said to have been interested in his services.
It had been widely reported that the Rossoneri were considering cashing in on the Italy international, given his seeming inability to thrive alongside star striker Mario Balotelli.
However, after showdown talks between the player and the club on Tuesday, Milan CEO Adriano Galliani stated that El Shaarawy would be staying at San Siro.
The striker responded to the announcement by tweeting: "Never had any doubts ... always and only Forza Milan!"
El Shaarawy netted 16 goals in Serie A last season, but only one following the arrival of fellow forward Balotelli from Manchester City at the end of the January transfer window.