The tasty Swede, 20, has not featured in the Premier League this season but had a successful spell at Feyenoord last campaign where he banged in 20 goals in 23 games.
Newcastle and Sunderland were monitoring his situation over the summer but City have moved to tie him to a new deal.
Guidetti said: “I feel really happy of course, it’s a fantastic football club and to sign a new deal is really, really good.
“I’ve been here for a long time and Manchester City are the ones who have helped me grow and develop to the player I am today.
“I am very grateful for that and I’ve seen how the club has turned into one of the biggest clubs in the world and it is great to be a part of that.”
Guidetti returned to City after suffering illness towards the end of the last campaign and he is still fighting back to full fitness.
He said: “It’s going well — I can run, I can shoot, I can pass, so I am definitely getting there, but we have to be a bit more patient and of course I want to get out there every day, it’s what I long for.”
Source: The Sun
