Manchester City defender Kyle Walker (AFP)
Walker agreed the new deal just weeks after his future with Pep Guardiola's side was in doubt amid links to Bayern Munich.
The 33-year-old was out of favour for a period of last season and was dropped from the starting line-up for City's Champions League final victory over Inter Milan in June.
Walker was in the final year of his existing deal with City, but the Premier League champions kept the right-back at the transfer deadline and have persuaded him to extend his stay in Manchester.
"I'm thrilled to sign a new deal. My future is with Manchester City and that is the best thing for me," said Walker, who has won 13 major trophies with City.
"I've enjoyed every single moment of the past six years at this fantastic club."
Walker has started City's four Premier League games this season, captaining the team on several occasions in a show of faith from Guardiola.
Setting his sights on more success this season, Walker added: "The treble-winning season is one I will never forget and we're ready to go again and try to win more trophies.
"We've got to demand that. We've set the bar and each year it's how do you get better? How do we get better? We seem to be doing that each year.
"We need to make sure that we're there competing in the later stages in all competitions and fighting for the silverware.
"I am delighted to continue at a club that competes for trophies every year and I can't wait to see what the next few years bring."
City director of football Txiki Begiristain added: "We are very happy that Kyle will be here until 2026. For me, he is the best right-back in the world.
"He is a player with a unique set of attributes. He brings a very special dynamic to our team. Kyle has been a huge part of our recent success."
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