The experienced defender was strongly linked with Bayern Munich during the summer transfer window, but has now committed to City.
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Walker’s new deal will keep him at the Etihad until he is 36.
After signing on the dotted line, the 33-year-old told City’s website: “I’m thrilled to sign a new deal.
“My future is with Manchester City and that is the best thing for me.
“I’ve enjoyed every single moment of the past six years at this fantastic Club.
“I have an amazing coach, great team-mates and staff and our fans are the best. I feel supported on every single level.
“The Treble-winning season is one I will never forget and we’re ready to go again and try to win more trophies.
“I am delighted to continue at a Club that competes for trophies every year and I can’t wait to see what the next few years bring.”
City’s director of football Txiki Begiristain added: “We are very happy that Kyle will be here until 2026.
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“He is an outstanding footballer and his speed, strength and experience make him such an important member of our squad.
“For me, he is the best right-back in the world, a player with a unique set of attributes. He brings a very special dynamic to our team.
“Kyle has been a huge part of our recent success, and we are confident that he will help us compete for trophies in the upcoming seasons.”
In July it was claimed that Walker had verbally agreed to join Bayern Munich.
But he later decided to stay at City following talks with Guardiola.
Walker was spotted going for dinner with his manager at swanky Japanese restaurant MUSU in Manchester last month.
The full-back joined City from Tottenham in a £50million deal in 2017.
He has since won five Premier League titles, two FA Cups, four League Cups and the Champions League.