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The 19-year-old Nigeria international, who scored 14 times in all competitions last season, is one of the game’s finest young forwards and will now stay with the Club until at least 2021.
Iheanacho said: “I can't express how I'm feeling! I'm very happy to sign my new deal for this Club, I'm excited.
"I just need to keep working hard and express my feelings on the pitch, and work really well and do great things for the team. I'm happy and I appreciate everything the Club has done for me so far at this point so I really need to help and work for them as well.”
Manager Pep Guardiola added: “Kelechi is a natural goal-scorer. I knew about him before, but I’ve been really impressed with him since I arrived.
"I like his personality, his attitude, his ability – we hope to help him reach the highest level and to realise his full potential.”
Iheanacho made a first-team impact at City back in 2014 on the summer tour of America, having caught the eye for Nigeria at the Under 17 World Cup a year before.
The affable forward overcame injury challenges in 2014/15 to serve more notice of his ability for City youth sides, scoring in the FA Youth Cup final against Chelsea and in the International Premier League Cup final win over Porto.
His meteoric rise continued with a Premier League debut against Watford in August 2015 and the next game saw Kelechi come off the bench to score a 90th minute winner against Crystal Palace.
Iheanacho’s goal on the final day of the season against Swansea that secured a 1-1 draw ultimately helped City into the Champions League qualifiers.
Now the Club and Kelechi can look forward to many more crucial goals.
The man widely dubbed ‘the new Neymar’ matched his mentor goal for goal at the Maracana Stadium on Wednesday evening in Brazil’s 6-0 thrashing of Honduras in the semi-final in Rio.