The Frenchman was instrumental in their title winning campaign last season and scored 11 goals in all competitions including the opener in their decisive final-day victory over West Ham United.
Nasri, 27, joined City from Arsenal in 2011 and has since won two league titles and a League Cup.
"I’m really happy to have signed this contract and to have committed my future with City," said Nasri.
"I’m 27 now and if you listen to some of the best managers in the game, they say that a midfield player’s best years are between 27 and 30 so I hope that I will give my best years to City.
"It took me time to adjust to living in Manchester because when you move here from London, it is a big change, but last year everything was perfect – I enjoyed my football and I love living in Manchester, feel very settled and I think that showed on the pitch.
"That’s why I’ve agreed this new contract – because I feel very much at home. Our supporters have been right behind me and it gives me the confidence to play my best game."
Although Nasri enjoyed a superb Premier League season, he was left out of France's squad for the World Cup in Brazil by manager Didier Deschamps having gained a reputation as a troublemaker.
He was also disappointing in France's World Cup playoff first leg against Ukraine last year.
(Reporting by Toby Davis; editing by Alan Baldwin)
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