The Italy international played a starring role for the club last season but has been linked with a move away after a drop in form following the January arrival of Mario Balotelli
The 20-year-old striker was a sensation in the first half of last season and the Rossoneri's single redeeming feature in a dismal start to the campaign.
But his form tailed off after January, following the arrival of Mario Balotelli, and given the former Manchester City man's ability to play as a lone striker and suggestions the pair were not compatible, speculation mounted regarding El Shaarawy's future.
But the San Siro club have now moved to dismiss any possibility of allowing one of their prized assets to leave the club.
A club statement read: "It was a meeting between Adriano Galliani, Stephan El Shaarawy and the entourage of our young champion. And everything went well.
"Stephan has always been a fan of AC Milan and has reiterated his determination to continue playing in the Rossoneri shirt. This feeling has been reciprocated by Milan, with conviction and confidence.
"Milan and El Shaarawy move forward together, as from June 2011. Milan, the Rossoneri colours and the Pharaoh Rossoneri remain absolutely together."
Premier League side Chelsea had been linked with a move for the former Genoa man, who scored 18 times times in all competitions last season, but will now have to look elsewhere with his current deal with Milan running until 2018.