Owen was left in the shadows last season as Javier Hernandez took Old Trafford by storm.
It was widely expected that the former Liverpool striker would be released in the summer.
Yet boss Alex Ferguson has sprung a shock and signed him up for another season.
Fergie said: "Michael has proved to be a top footballer.
"It is unfortunate that he did not get more opportunities but the form of Chicharito put everyone in the shade and his partnership with Rooney proved invaluable.
"I am delighted Michael is staying for a further year and we will look to give him more opportunities in the new season."
Owen, who last term scored five goals in 17 appearances, added: "I am delighted to have agreed a one-year extension to my contract.
"To play alongside so many great players, under an exceptional manager, and in front of so many passionate supporters is a real inspiration.
"I can't wait for next season to start."
The Bulgarian had been tipped to leave Old Trafford after boss Alex Ferguson left him out of his Champions League final squad for the defeat against Barcelona.
But he is determined to prove he has a future with the Red Devils and has vowed to fire them to their 20th league championship.
The Premier League's joint Golden Boot winner, 30, said: "I will stay. I will fight for the 20th title.
"If I were an easy quitter, I would never have made it this far. Everything at Manchester United starts from scratch for me on July 4."
Berbatov scored 21 goals as United won the Premier League with a nine-point margin over second-placed Chelsea.
However, he found his first team chances limited towards the end of the campaign following the emergence of Mexican sensation Javier Hernandez.
And it was Hernandez who partnered Wayne Rooney up front in the 3-1 Champions League final loss to Barca last weekend.
But Berbatov reckons there will be plenty of opportunities for him to prove his worth to United in the future.
He added: "I want to apologise to everyone for not taking part in the final.
"I hoped to make the whole of Bulgaria happy with my play. This did not happen and I can only say I am sorry for myself and for the Bulgarians, who expected to see me.
"But there will be new finals and we will be fighting for new titles. I am moving ahead. When you go through difficult times, you should not quit.
"The truth is that I stayed at the dressing room and watched the Champions League final there, on a TV screen.
"I was really disappointed. I was ashamed that I was not part of the team and did not want people to see how sad I feel."