The 20-year-old is yet to make his first-team debut for the Red Devils, but he has been in their squad on four occasions this season, including twice in the Champions League.
Hugill was an unused substitute against Wigan Athletic in the FA Cup on Monday evening, and it is believed that he has impressed Man United head coach Erik ten Hag during training sessions.
The forward is widely expected to leave Old Trafford on loan before the end of the January transfer window, but he has signed a new contract with the club, which will run until June 2026 and also include the option of an additional 12 months.
"Joe Hugill has signed a new contract with Manchester United. The striker has agreed fresh terms that will run until 2026, with the option of a further year," read a statement on the club's official website.
"He has developed well this season and trained regularly with the first team, while being on the bench four times, including for Monday night's Emirates FA Cup third-round victory at Wigan Athletic."
Hugill has been in strong form in Premier League 2 this season, scoring seven goals and registering one assist in nine appearances, while he has one goal in three EFL Trophy outings this term.
The forward represented Newcastle United and Sunderland during his youth career before making the move to Man United in 2020.
The Red Devils are believed to have beaten the likes of Arsenal and Tottenham Hotspur to his signature, and he spent time on loan at Altrincham last year, scoring once in seven appearances.
According to the Manchester Evening News, a loan exit is close to being agreed, with Man United keen for him to secure more senior experience at this stage of his career.
The Red Devils continue to be linked with forward additions this month, with Ten Hag said to be desperate for reinforcements in the final third of the field.
However, Anthony Martial has allegedly made it clear that he will not be leaving in January, with the striker prepared to wait until the end of the campaign to depart on a free transfer.
Man United are also working to a strict budget due to Financial Fair Play, meaning that the bulk of their business in the winter will be outgoings, with Jadon Sancho close to finalising a loan switch to Borussia Dortmund, while Hannibal Mejbri is being heavily linked with both Sevilla and Everton.