The Portuguese came close to joining Manchester United on loan in the January transfer window, but the move to the then Premier League champions broke down at the final moment.
An injury to first-choice left-back Marcelo, however, has meant that Coentrao has become a key member of Ancelotti's XI over the last couple of months.
Talk of a move at the end of the season continues, but Ancelotti has insisted that the full-back will remain at the Bernabeu this summer.
"Fabio Coentrao will be with us next year but he is competing with Marcelo," Ancelotti told reporters at a press conference.
It is not yet clear who will start at left-back for Madrid in the Champions League final this weekend.