Tuilagi had been linked with a move to French side Racing 92, but has instead opted to remain with the club where he began his career in 2010.
The 27-year-old said on Leicester's official website: "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."
Tuilagi's previous contract with the Tigers was due to expire in the summer.
The 27-year-old added: "This is a massive club and it means a lot to me and my family.
"I love the club and I want to repay the loyalty they have shown me in my time here.
"We are all behind Geordan Murphy and his ambitions for the team and I'm very passionate about playing my part in bringing back the success we all expect at such a massive club."
A move to France would likely have brought a halt to Tuilagi's international career, with the Rugby Football Union only selecting players who play in England.
Leicester head coach Murphy said: "Manu is a world-class player with a real X-factor about his game and anyone would want him in their team. He's been here a long time, his heart is here and we're all delighted that he wants to stay with the club.
"He is at his physical peak as a player at 27, he is a leader within the squad and we look forward to seeing many more big performances from him in a Tigers shirt."
Club chairman Peter Tom added: "It's great news for everybody at the club that Manu is staying.
"He is a world-class player who came through our academy to make his name in professional rugby and now on the world stage.
"He was very keen to stay and wants to play his part in what Geordan is building for the future.
"We appreciate that Manu can attract offers from elsewhere in the rugby world - who wouldn't want him in their team? - but we also know the love and the passion he has for the Tigers after nearly 10 years in the team."
