The 39-year-old, who had been strongly linked with a move to Al Ahli, was appointed assistant of the La Liga club by former Madrid boss Jose Mourinho in 2010.
The pair's close relationship has led to suggestions that the experienced coach could follow Mourinho to Chelsea this summer, with Karanka full of praise for the Portuguese.
"I was the person who knew Mourinho better than anybody else and I have to say that it was a privilege to work with him," Karanka told reporters at a press conference.
"I am proud to be able to say I am a friend of his. It was my first experience in the coaching field, and it was an incredible experience with him."
However, it has been widely suggested that Karanka could look for a managerial position in the game.