Santos have announced that Neymar has agreed to remain at the club until after the 2014 World Cup in Brazil.
Santos president Luis Alvaro de Oliveira Ribeiro called a press conference on Wednesday to announce that the player had agreed an extension to his current contract.
"It's great news for Santos and the player, and it will leave the Santos fans overjoyed," agent Wagner Ribeiro told Globoesporte.
Both Real Madrid and Barcelona had been in talks with Santos over a deal to sign the player. ESPNsoccernet had understood that the player had agreed a move to the Bernabeu at the end of the season before committing to the new deal.
Neymar, who had been in contract talks for the past fortnight, is reported to have had a 50% pay increase to take his salary to the level he would have been offered by the top European clubs.
"I am delighted. It is one more decision that I have made in my life, together with my father and brother. I would like to thank the fans for the affection they have for me, I am overjoyed to be staying here until 2014," Neymar said.
"My goal is not to be the best in the world, it is to play in the best competitions. Santos are doing just that. They fought for the Libertadores, they are going to play for the Club World Cup. Santos is a massive club, the best player in the world played here.
"There was interest, but my father did not let me know of any concrete offer. I heard about the interest. I have always said I wanted to stay here and I am very happy to be representing Santos and Brazil.
"I want to thank those clubs [Barcelona and Madrid] who were interested in my football, and the fans who wanted to see me there. It is a great honour to have two huge clubs wanting my football. The clubs wanted me to go over there, but we all have to make choices in our lives. And today, my choice was Santos."
Santos president Luis Alvaro Ribeiro added: "The happiest day of my life had been June 22 in the Pacaembu [the final of the Copa Libertadores] but I will dare to say that today is even happier, because our dreams became reality."