The 33-year-old France international joined City from Inter Milan on a six-month deal in January and he has now chosen to take up the option of another year with Roberto Mancini's side.
Vieira made 14 appearances for the Blues last season, scoring his only goal in the 6-1 thrashing of Burnley at Turf Moor.
The signing of Vieira was not enough to help City secure a coveted place in the Champions League, but the former Arsenal player's decision to extend his stay will boost the club as they seek to ensure they have the depth to cope with a campaign that will see them compete in the Europa League.
Mancini, who Vieira played under at Inter, has already started strengthening his squad after Hamburg defender Jerome Boateng agreed to join on a five-year deal.
City have also been linked with moves for the likes of Napoli midfielder Marek Hamsik and Liverpool striker Fernando Torres. They also had a £20million bid for England midfielder James Milner turned down by Aston Villa.
But there have also been departures, with Martin Petrov, Benjani Mwaruwari and Sylvinho being released after the club decided not to offer them new deals.