Financial terms were not disclosed, though Piniella, reached by telephone at his Tampa, Fla., home, told The Associated Press that he was "well taken care of." He would not elaborate.
Last week, the Mariners offered a new contract worth about $6.5 million to $7 million over three years, according to several reports.
Piniella received permission this week to talk with the Cincinnati Reds, whom he managed to a World Series title in 1990. Media reports had Piniella going to Cincinnati if the Reds could match the Mariners' offer.
Piniella said he thought Cincinnati was "a great baseball town" and voiced his support for Reds general manager Jim Bowden.
"There's a lot of good things about the Reds organization, and I wish them the best of luck," Piniella said. "I'm just happy to get this situation done. I had to make a decision."
Piniella reportedly earned $1.3 million last season, when he managed the Mariners to the AL championship series.
"We had a very successful season in Seattle, and we're looking forward to building on that," Piniella said Tuesday. "I've been in Seattle for eight years, and there's a lot of loyalty there."
Mariners general manager Pat Gillick praised Piniella's work in getting Seattle to the playoffs this season.
"As he demonstrated again this year, Lou is one of the most talented managers in the game," Gillick said. "He's passionate about winning and about helping to make the Mariners one of the premier organizations in baseball."
Under Piniella, the Mariners have been to the playoffs three times in the past six seasons. They won a franchise-best 91 games this year and beat the Chicago White Sox in their AL division series before losing in six games to the New York Yankees in the ALCS.
Piniella said his top priority would be signing All-Star shortstop Alex Rodriguez, who filed for free agency on Monday and will likely command baseball's highest salary.
"We gotta get Alex signed," Piniella said. "Everything else will be handled as the winter goes on, but that's the first thing we have to do."
Piniella praised Seattle's fans, his staff and Safeco Field, the Mariners' new ballpark, and said he looked forward to the next three years.
"I enjoy working with the people in Seattle, and the fans in that town have been great," he said. "We have a great ballpark and a great club, and we'll get it to he next level."
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