The 31-year-old joined the Citizens on a free transfer in July 2022 and has since made 34 appearances across all competitions, winning two Premier League titles, one FA Cup and one Champions League.
Ortega has had to play second fiddle behind first-choice shot-stopper Ederson and the majority of his appearances for Man City have taken place in cup competitions.
Nevertheless, the German has impressed when called upon by manager Pep Guardiola and made a crucial contribution to City's Premier League title success at the backend of the 2023-24 campaign.
Indeed, Ortega denied Tottenham Hotspur's Son Heung-min with an immensely important one-on-one save in City's penultimate league game with the score at 1-0; the Citizens went on to win 2-0 and less than a week later clinched an unprecedented fourth top-flight title in a row.
Ortega 'loves everything about' Man City
Since the season has come to an end, Ortega has been tipped to potentially move on from Man City in search of regular first-team football, with clubs such as Bayern Munich being credited with an interest.
However, Ortega has revealed that he and his family are "settled" in England and he has decided to put pen to paper on a new contract that keeps him at the Etihad for another two seasons.
"I am delighted to be staying at Manchester City for longer," Ortega told City's official website. This is a football club that provides players with everything we need to be our best.
"Every single day I feel motivated and challenged, and I have improved as a goalkeeper since coming here two years ago.
"My family are really settled here in England... I love everything about it here. Signing this deal means I can now focus 100% on next season and beyond."
Ortega extension casts doubt over Ederson future?
Ortega's contract means Man City's goalkeeping situation has taken another twist and raises further questions about the long-term future of current first-choice Ederson.
The Brazilian has made over 300 appearances and has won 17 trophies, including six Premier League titles, during his successful seven-year stay at the Etihad, but speculation continues to swirl over a possible summer exit for the 30-year-old.
Recent reports have suggested that there is a "possibility" that Ederson will seek pastures new this summer if a "good proposal" is offered to him this summer.
Ederson has been linked with a possible switch to Saudi Arabia amid reported interest from Al-Nassr, but it is understood that Man City would only entertain offers in excess of £40m.
The potential departure of Ederson could see Citizens delve into the transfer market for a high-profile replacement, but they may instead promote Ortega and make him the club's new number one goalkeeper.
Ortega's new contract has been described as "crucial" by Man City director of football Txiki Begiristain, and although he remains a No.2 for now, the Citizens chief has hinted that the German will play a more prominent role at the club in 2024-25.
"This is a crucial contract extension for Manchester City," said Begiristain. "Stefan is the best No.2 goalkeeper we've ever had, providing us with quality, stability and experience.
"He is such a talented 'keeper - our goalkeeping coach Xabi Mancisidor tells me all the time how good Stefan is. He is very skilled and it's clear that since his arrival here he has contributed significantly to our success.
"Hopefully he can now enjoy his summer and come back fresh and ready for the 2024-25 season."
Ortega's new contract comes just over a fortnight after veteran backup goalkeeper Scott Carson, 38, signed a new one-year deal to keep him at the club until the summer of 2025.