The 60-year-old Scot had intended to retire when his current contract ended in the summer.

But he approached the club earlier this year with a view to extending his stay.

The new contract keeps him at Old Trafford until 30 June 2005.

United confirmed the deal in a statement to the Stock Exchange on Wednesday.

"The board of Manchester United plc is delighted to announce that it has reached agreement with Sir Alex Ferguson on a new three-year contract commencing 1 July 2002 until 30 June 30 2005."

When Ferguson joined United in 1986 as successor to Ron Atkinson, he initially struggled to turn around the club's fortunes.

However, a late goal from Lee Martin won the FA Cup in 1990 after a replay, a victory that started the ball rolling for a decade of unprecendented success.

The following year the European Cup Winners' Cup was won, before League Cup and European Super Cup victories were clinched in 1992.

A year later Ferguson finally ended a 26-year title drought by bringing the Premiership title to Old Trafford.

In 1994 Ferguson guided United to their first league and cup double.

In 1996 a second double followed while the 1997 Premiership title was also added to his burgeoning collection.

But Ferguson's finest hour came in 1999 when United captured an unprecedented treble of Premiership title, FA Cup and European Cup.

That success brought the Scot a knighthood.

A sixth Premiership title followed in 2000 and last season that became seven as United confirmed their domination of the English game.

United defender Laurent Blanc believes that Ferguson might have changed his mind about retirement when the team lost six league games earlier in the season.

"Ferguson has been very strong," said the Frenchman.

"He knows his players very well and he managed to direct them very well during that difficult time and the relationship between all of us never turned sour.

"It was not impossible that at that time Ferguson decided to stay at Manchester United."