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Alonso, 31, is in the final year of his current contract and was yet to commit his future to the nine times European Cup winners.

Manchester United held initial talks with Alonso and had hoped to bring him to Old Trafford on a free transfer next summer.

Chelsea manager Jose Mourinho was also monitoring Alonso's situation having worked with the Spanish international during his three years in charge of Madrid.

However according to reports in Spain, Madrid have extinguished any chance of the Premier League rivals attracting Alonso back to England after reaching an agreement to keep him at the Bernabeu until 2016.

The new contract will see Alonso earn just over £4m a season and has ended any chances of Madrid losing the midfielder for nothing.

Alonso has been a pivotal player in the middle of the park for Madrid since making the move back to his native country from Liverpool in 2009 for £30m.

Despite missing the opening three months of the campaign due to a broken foot, current Madrid boss Carlo Ancelotti spoke of his delight to have Alonso back at his disposal and denied any chance of letting him leave in an exchange for Juventus star Andrea Pirlo.

He said: "Xabi is a vital player for Madrid now that he's recovered from injury.

"There are only two players like him in Europe. One is Pirlo and the other is Xabi.

"However, we have no intention of making a player exchange deal with Juventus. There is no substance to any rumour like that."