The 27-year-old powerhouse has been in fine form during the Six Nations, scoring two tries in England's demolition of Italy last weekend.
Injuries restricted Tuilagi to just couple of England appearances in the five years before the start of this year's championship in which he has been ever-present.
A move to France, however, where he was reportedly set to earn one million pounds per year, would have ruled him out of international consideration just when he is back to his best.
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"This is a massive club and it means a lot to me and my family," Tuilagi, who has scored 40 tries in 121 appearances for Leicester, said in a club statement. "I love the club and I want to repay the loyalty they have shown me in my time here.
"This was a big decision for me to make but I am very happy to be able to stay here, I have a lot of friends here, my family is happy here and the club means a lot to me."
Tigers head coach Geordan Murphy said Tuilagi was at his physical peak.
"Manu is a world-class player with a real X-factor about his game and anyone would want him in their team," he said.
(Reporting by Martyn Herman; Editing by Christian Radnedge)
