The full-back had been linked with a move away from Camp Nou at the end of the current campaign with Inter, Roma and Liverpool all thought to be interested, however he will now stay at Barca until 2018.
Montoya broke into the first team under Tito Vilanova last season and has been used as a squad player by Gerardo Martino this term, with the 22-year-old making 18 appearances in all competitions.
The details of his new deal were announced by Barca on Saturday, with the club revealing that he will officially sign the new deal in the coming weeks.
"Barcelona and Martin Montoya have reached an agreement to extend his contract until the end of the 2017-18 season," the club said on their official website.
"The new deal will have a buy-out clause of 20 million euros.
"The two parties will put pen to paper in the next few weeks."
Montoya joins Andres Iniesta and Marc Bartra in committing his future to Barcelona in the recent months.
