Giroud’s future at Chelsea has been under the scanner for several months, with a move to Italy believed to be in the works.
His contract was set to expire at the end of this month and he was expected to be available on a free transfer this summer.
AC Milan have been in talks with Giroud’s representatives over taking him to Italy and were confident that they would snap him on a free transfer.
But that changed on Friday when Chelsea revealed that the Frenchman has signed a new contract until the end of next season.
Giroud’s playing time was reduced under Thomas Tuchel though he was part of the squad that won the Champions League.
However, it has been claimed that the new contract does not mean that the striker will definitely stay.
He could still move away from Chelsea but the club will now be able to earn a transfer fee from his departure.
AC Milan are keen on him, but it remains to be seen whether they will be prepared to negotiate a fee with Chelsea.