The Spaniard has impressed in the Premier League since his switch to the Welsh club last summer and while Michu had previously claimed that he was happy with the Swans, rumours of a possible exit had been rumbling.
Despite recent speculation, Michu, who moved to Swansea for £2.2m, has insisted that signing a new deal was an "easy" decision to make.
"I am living a dream here at Swansea," Michu told the club's official website. "I'm probably enjoying my football more than ever. It's easy to play with this team and tonight I have the chance to reach the first final of my career.
"I'm really happy here in the city with the people, the club and the fans. Everyone has been so nice to me since I arrived. I think the club are happy with me because they have given me a new contract. I am certainly happy with the club."
The 26-year-old, who has scored 16 goals in 28 appearances, is expected to be in the starting lineup for tonight's League Cup semi-final second leg against Chelsea.