The 38-year-old World Cup winner has been in talks with the Sky Blues about activating the second year of his $2 million-a-season contract, with his brother Stefano arriving in Sydney last week to finalise the deal.
'I am very happy to be staying at Sydney FC for another season," Del Piero said.
'I chose Sydney FC at the beginning of this season because I wanted to show my love of football in another country and I have enjoyed the challenge and my time at Sydney FC and in Australia.
Del Piero posted a statement on his website revealing his decision to stay at the A-League club, with this banner:
At an afternoon press conference to confirm the deal, Del Piero joked that "at my young age" he was proud to have had interest from other clubs in his services - with Brazil heavily mooted as a destination - but that he did not seriously consider leaving the Sky Blues.
"No. No. No," Del Piero replied when asked if he was considering leaving Sydney FC.
"I took a lot of time to agree to another season... it was a big challenge for me and my family to come here, I changed everything in our life.
"That's why I needed to understand what is good and what is not. For sure it's good here, and the relationship with the club (is good)."
Del Piero has scored 11 goals in 18 matches - the highest-ever goal haul by a Sydney FC player in a single season.
After a horrible start to their 2012/13 campaign, the Sky Blues have risen to fifth under coach Frank Farina.
Del Piero said the turnaround, his family's happiness, and the vision of Farina and chairman Scott Barlow were all crucial factors in his decision to remain with the club.
"Weeks ago we had to be concentrating to come out of a terrible situation with the team. Now we are in a good position but it's not enough," Del Piero said.
"We have six games remaining and we have to push our energy to make the playoffs.
"Everyone wants improvement next year, everyone wants to do better and better every week and that's what I feel when I talk with Scott and all the board and the boss.
"That's why I'm very happy to stay here and do another great and better year."
Off the pitch, Del Piero has helped generate greatly-increased media interest, crowds and television ratings for the A-League.
Sydney FC chairman Scott Barlow was thrilled to have agreed to terms with Del Piero well before the end of the season.
"On the pitch his class has been on display and off the pitch the impact Alessandro has had has been huge," Barlow said.
"He has raised the profile of not only Sydney FC, but the A-League as a whole.
"He has done that here in Australia, but also internationally.
"It's incredible to think every week there are football fans across Italy tuning in to watch Sydney FC play live. That's just one example of the impact he continues to have."
Barlow suggested negotiations were reasonably straightforward with Del Piero's camp.
"There wasn't a sticking point. We made it quite clear to Alessandro some time ago that we were quite keen for him to say," Barlow said.
"He made it clear to us some time ago that he was very happy to stay as well.
"We worked through some of the detail of the contract that needed to be worked through, and that concluded late yesterday."