Premier League quartet Fulham, Bolton, Newcastle and Wigan were all rumoured to be tracking the highly-rated 20-year-old, but he put an end to the speculation by penning a bumper new deal at the Madejski Stadium.
And the Iceland international told the Reading Chronical: "I'm happy with my contract and happy to stay for another three years.
"We've got a good chance of being promoted and doing well in the league next season. So it wasn't really a tough decision because I always wanted to be here.
"My first option was always Reading, they made me a good offer and I was happy to sign.
"The way we played after Christmas was a big part in my decision. We did so well and hopefully we can continue that into next season."
Sigurdsson, who scored 17 league goals in 2009-10, enjoyed a breakthrough season as the Royals fell agonisingly short of a play-off place.
It has been a swift rise to prominence for the 20-year-old who only emerged through the Reading Academy last summer.
"My ambition last year was just to get into the team, be in the squad or be on the bench," he recalled. "So everything has changed a lot since then.
"It's a good thing and it shows the hard work I put into last season has got me through.
"It was Brendan (Rodgers) who put me into the team and gave me my chance. Then when Brian McDermott came in the whole team started playing well so credit to both of them for giving me the opportunity."