David joined United in 2011 and has made 367 appearances so far.
During his time with the club, he has won the Premier League, the FA Cup, the League Cup, the UEFA Europa League and the Community Shield.
"It has been a privilege to spend eight years at this great club and the opportunity to continue my career at Manchester United is a genuine honour," David said in an official statement.
"Since I arrived here, I could never have imagined I would play over 350 games for this club. Now my future is fixed, all I want is to help this team achieve what I believe we can and win trophies again, together," he added.
The 28-year-old, who has consistently been linked with a move to Real Madrid in recent seasons, was in the last year of his contract and would have been able to open talks with clubs outside England over a possible move in January.
United boss Ole Gunnar Solskjaer said: "I am delighted that David has committed his long-term future to the club.
"Over recent years, David has proved himself to be the best in the world and a vital part of our plans as we look to take Manchester United back to where it belongs."
The Norwegian added that David "represents everything you want in a goalkeeper".
"As a player he is still hugely determined and hungry to achieve more. We all look forward to working together to meet those ambitions over the coming years."
( With inputs from IANS )