The 26-year-old, who burst onto the Super Rugby scene in 2015 with the Hurricanes and made the All Blacks that year, went on to start in the last World Cup final against Australia and scored a try in New Zealand's 34-17 victory.
He played just two games for the Hurricanes last season before injuring his shoulder and was ruled out for the entire year, but is expected to be fit for the new season starting next month.
"Being part of the Hurricanes for the past three years has been an awesome experience and though I wasn't able to play a big part on the field last year, winning the ... Super Rugby trophy for the first time only reinforced my view that the club is building something special," Milner-Skudder said.
"It's been an absolute honour to represent my country and wear the All Blacks jersey and the only way to do that again is to stay in New Zealand.
"Hopefully I can play well enough to be considered for selection again, but as always there is some massive competition there, so my whole focus right now is just getting back on the field and trying to put my best foot forward with the Canes."
The Hurricanes begin the defence of their Super Rugby title against Japan's Sunwolves in Tokyo on Feb. 25.
(Reporting by Greg Stutchbury; Editing by Peter Rutherford)
