Valencia have increased Musah's buyout clause to €100 million as part of the renewal, which has seen the midfielder commit his future to the club until 2026.
Musah, 18, has enjoyed a breakout season at the Mestalla since making his full debut for the club against Levante in the opening game of the campaign in September.
The New York-born youngster became the club's second-youngest goalscorer ever when he netted against Getafe lin November aged 17 years and 338 days -- and the youngest since 1941.
Musah had previously represented England at youth level but chose to accept the call from USMNT coach Gregg Berhalter.
However, as he only played in friendlies for the U.S., his allegiances at international level could yet change again.
After being born in the U.S. to Ghanaian parents, he spent his childhood in Italy before moving to England in 2012, joining Arsenal.
Musah left Arsenal for Valencia in 2019 and after spending last season playing for the club's B team he has become a key player for the first senior side under new coach Javi Gracia.
He has made 10 appearances in the league this season and was part of the team which beat Real Madrid 4-1 last month.