The Argentina international was approaching the end of his previous deal but has now committed until the end of the 2015-16 season.
Demichelis has become an important member of City’s defensive unit after an initially shaky start following his move to the Etihad Stadium in September 2013 from Atletico Madrid.
The 34-year-old told the club’s website: “I want to say that I am really proud and happy to have extended my contract for another year.
“Manchester City is a Club with a lot of ambition. We want to grow every year.
“When you get to hold a trophy, it???s the best feeling for any player.
“I want to say that I will fight for this Club and for my teammates until the end of my contract. I will fight??to try and win titles.”
Demichelis has not ruled out the possibility of staying at City beyond 2016 but admits that at this stage in his career he is taking every week as it comes.
“I had the experience of living in Germany for so many years, so it wasn???t so difficult to adapt to living in England,??? he added.
“We are happy here ??? my wife and son are happy here. We are trying to improve our English and I think that???s a good thing for our future.
“At this stage I am enjoying playing week to week ??? you can never say what can happen in the future.”