The 21-year-old Belgium youth international is currently on loan at Championship rivals Doncaster but the extension to his deal secures his place in the future plans of City manager Sven-Goran Eriksson.
"We spoke this week and I am delighted that Franck has agreed to extend his contract with us. He is a talented, young player with a bright future in the game ahead of him," said Eriksson.
"Franck is a good all-round player and has the quality of being versatile. He is also doing well on loan at Doncaster, which is good news for his development."
Moussa, who joined Leicester from Southend in August 2010, made 12 appearances and scored one goal for City before beginning his loan spell at Doncaster in February.
He has scored once in nine appearances for Rovers. His loan spell at the Keepmoat Stadium is due to end on April 16.
Source: PA
Source: PA