It was expected Pioli would be replaced by Ralf Rangnick, who had been in talks with the Rossoneri about a deal that could have seen him become head coach and effectively sporting director.
Rangnick's representative confirmed on Tuesday that talks had been called off because "it is not the right time at the moment and there is no momentum for working together". Marc Kosicke also pointed to "the good development and results under Pioli" as a reason for the move not taking place.
Milan later confirmed their current coach had agreed to a new contract that would keep him at San Siro until June 2022.
"I am happy and proud of the trust I have received from AC Milan," Pioli said in a statement.
"I want to thank everyone, including our fans, who we are really missing at the stadium, but are always close and supportive. As I have said many times, our future is today: we must be focused and determined, be united and play as one. We are at the beginning of an extraordinary path. If we keep working this way, we will grow and be more and more competitive."
CEO Ivan Gazidis said: "Stefano has shown he can deliver the vision of football we have for our club - exciting, progressive and passionate.
"This is not a decision based on recent victories, but one based on how Stefano has built team spirit and unity of purpose, the way he has improved the performances of the individual players and the collective team, the way he has embraced our vision and the way he has represented himself and the club's values."
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