The 19-year-old’s previous deal with City expired at the end of last season and he has recently been linked with moves to the likes of FC Twente and Leicester.
The new deal will keep Guidetti at City until the summer of 2014.
“After (considering) some other strong alternatives, John has decided on City when it came to signing a contract,” Guidetti’s agent Per Jonsson told Aftonbladet.
“To stand up against the increasing competition at Manchester City is what John Guidetti is all about.”
“For me it is really important that an important and skilled manager is engaged in my progress as player,” Guidetti said.
“And when he is, you just need to listen.”
He added: “The club will play a record number of games during the coming season and I am convinced that my chance will come, and I will be ready to take it.
“We have agreed on a good situation where I will work harder than ever before to establish myself as a player at this fantastic club with all its fantastic players and fans that really give all their support.”
