The news comes after Ralf Rangnick and his representatives announced that the two sides agreed he would not be joining the Rossoneri.
Milan made the announcement after their 2-1 victory over Sassuolo, vaulting them into fifth place.
“I’m very happy with this deal,” CEO Ivan Gazidis stated regarding the deal. “Stefano has shown he is capable of delivering the type of football we want for this club, which is enthusiastic, modern and exciting.
“This isn’t a decision based on recent results, but rather based on the way that Stefano has created a team with spirit and united in intent, the way he has improved the performances of individual players and the collective, the way he has made our vision his own and how he has transmitted his personality and values to our club.”