The midfielder said he was not the subject of any offers from rival clubs because he had made it clear all along that he would be staying at the Santiago Bernabeu.
The two-year extension ended speculation that the midfielder was contemplating leaving on a free transfer at the end of the season.
"Real Madrid is the best place I could be," Alonso told reporters on Friday. “I feel at home here. There was no reason to look for alternatives. There have not been any offers because I decided I wanted to be here."
The Spain international added that coach Carlo Ancelotti had played a key role in his decision to stay put, alluding to their great understanding of each other on and off pitch.
Alonso said: “He was a midfielder and knows what this position means. It has been very important and I thank Ancelotti for his words and support.”
With his future at the club confirmed, Alonso is now focused on trying to help Real Madrid finally claim its 10th European Cup title.
“I won the Champions League with Liverpool but I want to win it with Real Madrid," he said.