The Brazil international was believed to be close to leaving Milan for Paris Saint-Germain last month, but the move eventually fell through after club president Silvio Berlusconi vetoed the transfer.

Silva's agent responded to the failed transfer by demanding a new and improved deal for his client, and the centre-back has now ended all speculation about his future by inking a one-year extension to his previous contract.

The 27-year-old joined AC Milan from Fluminense in the summer of 2009 and has since developed into one of AC Milan's undisputed stars, making over 100 official appearances for the 2010/11 Serie A champions.

A statement on the club's website read: "An important decision (has been) taken in difficult times and faced with a unique economic proposal.

"Thiago Silva is not simply a champion who tackles and wins back the ball, who, with his team-mates, wins, draws or loses the match, Thiago Silva himself embodies the class and style of Milan, the charisma of a club that loves the game but also the result and behaviour.

"And so his stay with the Rossoneri, decided by president Berlusconi, preserves the Milan identity."