The French stopper was thought to have been stalling on a new contract in order to look at other options in January, with his current deal expiring at the end of the season.
The 25-year-old has now put those rumours to bed by agreeing a deal to keep him at Old Trafford until the summer of 2007.
Sir Alex Ferguson is delighted that Silvestre has finally agreed on the terms of a new deal.
"I was delighted that Mikael wanted to stay at Manchester United, and for the last few weeks, the negotiations between both sides have gone very smoothly," Ferguson told the club's website.
"He's been playing really well for us this season, and yet he is still a young man who has not reached his peak. We can see a terrific future for him at United."
The new deal has, unsurprisingly, come as Silvestre has been producing some of his best performances for the club, in his favoured position in the heart of the defence.
Although he is likely to return to the left back slot once Rio Ferdinand returns from injury, Silvestre insists he was not threatening to leave in order to get improved terms on his contract, or holding out for assurances that he would be played at centre half.
"Looking for another club, and weighing up other possible moves after January, was never in my thoughts. I feel great and happy here," said Silvestre.
"I read what was being said in some newspapers but I always said I wanted to stay. I am delighted I am staying on at United.
"I want to achieve more great things here. I want to put United back on top in England and Europe. That's why I wanted to stay to help prove to all the people who have said that United is falling down. I wanted to help show that we are not.
"The only reason negotiations have gone on a bit is that you can't get it all sorted in one appointment and, with the amount of games we play, you just haven't always got the time to sit round the table.
"But if we'd got to January 1 when other clubs could have spoken to me there would have been pressure from them, pressure on the club and myself, and a lot of paper talk.
"So it was best to get it wrapped up now."
Meanwhile, Ben Williams has returned to Old Trafford after his loan spell at Coventry expired.
