And the First Division club have claimed that Paterson rejected a direct approach from Dundee United for his services.

The Scottish Premier League outfit confirmed caretaker Paul Hegarty as the successor to sacked Alex Smith several hours after Paterson signed his new deal.

It is understood that Paterson had become United's target after Ian McCall decided to remain at Falkirk.

But, although Paterson admitted that he would be tempted by a move to an SPL club, he has decided to remain in Inverness.

Caley Thistle announced at on Tuesday that he and assistant Duncan Shearer would be contracted to them until the end of season 2006-07.

Director of football Graeme Bennett said: "To put the record straight, Steve was the subject of an approach from Dundee United to be their manager.

"But we are delighted he has chosen to stay."

The Highland club had been angered by United's approach, but Bennett said that, as far as they are concerned, the issue was over.

"He can achieve that at this club, or at another, as the opportunity arises.

"While others have spent lots of money and worked with large squads, Steve has trusted his own judgement, worked extremely economically, given local youth its chance.

"And only Rangers and Celtic have scored more goals than Caley Thistle."

Paterson, who has had well-publicised domestic problems, was relieved that his future has been sorted out - for the sake of his family.

"This club now has the kind of board and set-up which can take it to the Premier League," he said.

"I want to finish what I've started here. We've an exciting team whose best is yet to come.

"There is now a great spirit at this club."

Instead of prising their target to Tannadice, United appear to have simply handed Paterson an extra bargaining chip with his present club, as had been the case with McCall.

Paterson has led Caley Thistle from their formation as an amalgamation of two Highland League clubs and taken them from the Third Division to the First.

They have narrowed the gap between themselves and First Division leaders Falkirk to two points.