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Mourinho, who arrived at the club in 2010, had been contracted until 2014 and there had been speculation over his future during the season.
However, he went on to win the Liga title this season as well as guiding Madrid to the semi-finals of the Champions League and has now extended his contract by two years.
A statement on the club's official website read: "Real Madrid CF and Jose Mourinho have reached an agreement to extend the latter's contract with the club until 30 June 2016."
Mourinho won the Copa del Rey in his first season with Madrid.
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