The announcement comes as a major surprise, given that numerous reports had suggested the 61-year-old would be removed at the end of the upcoming season to make way for Pep Guardiola.

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City had reportedly identified Guardiola as the manager to lead them in the 2016/17 campaign, but that strategy now appears to have been rejected following Friday’s revelation.

"I am proud to manage Manchester City FC and am therefore very pleased to have agreed this contract," Pellegrini told the club’s official website.

"I have a very good quality group of players and a great team of people to work with on and off the field and at all levels of the club.

"I am focussed on the coming season and confident that my team and I will respond to the constant support shown to us by everyone including of course our fantastic fans."

After winning the Premier League and League Cup in his first season, the Chilean manager endured a miserable second season in charge.

City finished a distant second to Chelsea in the top-flight, bowed out of the Champions League at the last 16 stage and suffered two humiliating home defeats in the domestic cup competitions.

That run of results led to widespread suggestions that City would fire Pellegrini even before the end of the season.

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But the former Malaga and Real Madrid manager held on to his job, and on Friday received effusive praise from City's CEO Ferran Soriano.

"We are delighted to reach this agreement with Manuel Pellegrini who has already contributed so much to the development of Manchester City in his first two years with us and we look forward to further progress in the seasons ahead," Soriano said.

"This agreement allows Manuel to focus on the challenge of guiding a team capable of both fighting for domestic titles and competing for European honours."

OUR VIEW

Well, this is unexpected.

Why on earth would you offer Pellegrini a new contract after their disastrous season? After a catastrophic pre-season, in which the side conceded four goals against both Real Madrid and Stuttgart? At least wait until he’s got City off to a steady start.

It reeks of panic. Perhaps Guardiola has dismissed the club's advances, leaving City afraid they’ll be left with no one. Better Pellegrini than taking a punt on an up-and-coming young manager, right?

Of course, contracts mean very little in the world of football and it should be noted that 2017 is only two seasons away. The pay-off for any sacking would not be too severe, and in any case there may well be a clause in the new deal allowing City to axe Pellegrini if, say, he fails to win the Premier League, or fails to guide the club out of the Champions League group stage.

If that's the case then this makes a little more sense. It will give City an air of stability and pretend the manager’s job is safe. In reality they may well still be plotting a post-Pellegrini adventure, but keeping their options open in case the Chilean 'does a Jupp Heynckes' by producing wonders in a season when he might already have been lined up for the axe.

Liga Betis record second win under Pellegrini, Granada continue to soar YESTERDAY AT 19:09