Gündoğan, 23, was one of United's prime targets in the summer and representatives of the Germany midfielder were believed to have met United officials in January.
Yet despite suffering from a persistent back injury since the start of the current season, Gündogan has quashed any further speculation surrounding his future - for a year at least - by inking a new deal with Dortmund.
He said: "I am very grateful that my club has given me the opportunity to remain part of this very special team and club environment. I will do everything I can to be able to help my team-mates again as soon as possible and am very optimistic going into the coming weeks and months."
Gündoğan joined Jürgen Klopp's champions in 2011 from Nürnberg when United were said to be scouting him.
He was superb last season, when Klopp's side reached the Champions League final, where Gündoğan scored for the Yellow and Blacks at Wembley.