The 16-year-old has been a hit in Spanish football and became the youngest ever goalscorer in Primera Division when he scored in the 2-2 draw with Real Valladolid in October.
The new deal will keep him at Bilbao until June 30, 2015 and his buy-out clause has increased to between 36 and 45million euros.
Arsenal and Manchester City are reportedly among the clubs who have watched the youngster in action.
