Tuilagi had been offered a lucrative deal by French side Racing 92 but has decided to stay with the club where he has spent his whole career so far.
The 27-year-old, who was born in Samoa, came through the Tigers academy and has made 121 appearances for the club.
Tuilagi has been in resurgent form for England this season, after a long period out of the international game due to injuries.
A potential move to France could have ended his international career but Tuilagi has now ended the speculation about his future and told the Leicester website: "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 (head coach) 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.
"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."
Tigers head coach Geordan 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 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."