The 44-year-old, who had been linked to a move to Manchester City or Paris Saint-Germain, had been under contract with Atletico Madrid until 2017.
“The club is undergoing a period of solid growth and I chose to stay where I am,” Simeone told a news conference.
“I am convinced that the club will continue to grow, I see it getting stronger, I see it enthusiastic.”
In January Chinese multi-billionaire Wang Jianlin bought a 20 percent stake in Atletico and Simeone has reportedly been told the club will not need to sell their best players to meet huge debt repayments as in the past.
Wang, who is number 42 on Forbes magazine’s list of the world’s richest people with a fortune estimated at $18 billion, will invest a much-needed 45 million euros ($52 million) into the Atletico coffers for his share of the club.
Simeone has had a successful spell at the Spanish side since he took charge in December 2011 after the club suffered a humiliating King’s Cup loss to third-division side Albacete.
Simeone led Atletico to the 2012 Europa League title before his side beat city rivals Real Madrid in the 2013 King’s Cup final held at Real’s Bernabeu stadium.
Under his watch Atletico won its first La Liga title in 18 years in 2013-14 and narrowly lost to Real Madrid in the Champions League final.