The 36-year-old's deal from New York City was due to expire at midnight on 31 December but he will now stay until the summer and miss the start of the MLS season.
Former England international Lampard is available to face Sunderland in the Premier League on Thursday.
Lampard has scored six goals in 17 appearances for City this season.
He signed for New York after being released by Chelsea last June and his new starting date in the US will be confirmed "as the Premier League and MLS seasons unfold", New York City said in a statement.
New York City FC director of football Claudio Reyna said: "Frank is a star and it is no surprise Manchester City is rewarded by his contributions on the field every single day.
"He is eager to get to New York once his commitment ends in England and will be available to play on arrival as a permanent member of the squad, given he will come to us having played at the highest level."
Manchester City have extended the contract of midfielder Frank Lampard until the end of the season.