The 28-year-old midfielder, who played in Australia's 3-1 loss to Chile at the FIFA World Cup before a hamstring strain kept him out of his country's next two matches against Netherlands and Spain, will become Victory's Australian marquee player.
Milligan went very close to signing for Premier League club Crystal Palace before last season until Victory scuppered the deal due to a disagreement about the payment plan, while Baniyas of United Arab Emirates offered a transfer fee of one million Australian dollars but were knocked back.
Before the World Cup, reports had emerged that Milligan was about to sign a contract with extension with Victory and speaking to the Herald Sun, Melbourne's captain confirmed he will stay.
"I'll be at Melbourne Victory next season. We negotiated a contract before I went away (to Brazil) and I'll sort that out once I get home," Milligan was quoted as saying on Monday.
"I'm really happy and they've come with a very good offer for me and I'm very excited about this season."
The marquee deal will mean Milligan can be paid outside the A-League's salary cap, which should set him up for the future with his wife and two daughters.
All A-League clubs can pay two marquee players outside the salary cap - one Australian and one international.
With former Australian marquee Archie Thompson accepting a reduced deal to stay with Melbourne, Milligan has been upgraded.
Milligan, who has played the past two seasons with Victory - the first on loan, claimed he would never rule out accepting the challenge of playing at a higher level but added he would not leave Melbourne for just anything.
"We all consider things that come but now it would take a lot to lure me away," he said.
"I've spoken to (Victory coach) Kevin (Muscat) and the club and as I've said all along it was going to have to be something pretty special to uproot my family and leave Melbourne."
