The right-back, a product of La Masia, had been linked with a move away from the Catalan outfit at the end of the season, with Liverpool among those reported to be interested in the 22-year-old.
However, the youngster has decided to commit his future to the Blaugrana.
"FC Barcelona and the player Martin Montoya have reached an agreement to extend his contract until the 2017-2018 season," read a statement on the club's website.
"The buy-out clause of the new contract is €20m (£16.7m). The player's contract will be signed in the coming weeks."
Montoya broke into the Barcelona first team in 2012 and has since gone on to make 53 appearances for the club, scoring two goals in the process.