Raheem Sterling has signed a new contract committing him to Manchester City until 2023, the Premier League champions have announced.

The 23-year-old England forward has been rewarded for his excellent form with an improved package – reportedly worth up to £300,000 per week – that extends his previous deal by three years.

Sterling, who joined City from Liverpool in a deal worth a potential £49million in 2015, was an integral member of last season’s Premier League title-winning side and has begun the new campaign in fine style.

Sterling, who has also won the Carabao Cup twice with City, said: “I’m delighted to sign. My development here has been incredible. I felt from the minute I got here it was the right choice for me. It’s really paid off for me and I’m really grateful.”

Sterling scored 23 goals in all competitions last term and has netted seven more for the club in the opening three months of the current season. He also scored two goals to help England to a memorable victory in Spain last month.

Sterling said: “Every season you come in you want to do better than your previous season. You want to try and develop and get better.

“With the facilities we’ve got here there’s no reason not to. With the coaching staff and the players we have in this team it’s the perfect environment to develop and get better.”

Contract talks between City and Sterling’s representatives had been going on for some time and there were reports of sticking points during the process.

That led to speculation that Real Madrid had been alerted to his potential availability, but City were determined to retain the services of a player who has shone under the guidance of manager Pep Guardiola.

Director of football Txiki Begiristain said: “This is a significant moment for the club. Raheem has improved dramatically in the past two seasons and is now one of the Premier League’s best attacking players. We’re all delighted he has committed his future to City.”

Sterling was involved in a comical incident this week as he was awarded a freak penalty in City’s 6-0 Champions League win over Shakhtar Donetsk. Sterling had been shaping to shoot when he stubbed his toe and fell over. He was under no pressure from defenders at the time but the referee pointed to the spot.

Sterling apologised afterwards and Guardiola admitted it should not have been a spot-kick but the incident continues to receive considerable attention.

Speaking at a press conference to preview Sunday’s derby against Manchester United, Guardiola said: “We made an incredible performance against Shakhtar and all the notices are about what happened with Raheem.

“He was going to make a chip and there was something in the grass. He fell down. It wasn’t a penalty and that’s all. It’s not a big issue.”