Speculation in Rui Costa's native Portugal had suggested the 32-year-old had signed a two-year contract with The Red Devils.
Rui Costa's future with the Serie A champions has been the subject of intense debate since the end of last season due to his lack of opportunities in Milan.
Brazilian starlet Kaka has superseded Rui Costa in the pecking order but neither the club nor player wish to end their association.
The Rossoneri have moved once again to dismiss the idea of the experienced schemer leaving San Siro, stating he will be at coach Carlo Ancelotti's disposal this season.
"It's nonsense," sporting director Ariedo Braida told Maisfutebol Radio. "Rui Costa is staying at Milan and he is non-transferable.
"It is impossible that Rui Costa will leave. He is certainly staying with Milan."
Rui Costa's former clubs Benfica and Fiorentina have also been credited with an interest in the midfielder but Braida scotched any notion of a return to Portugal.
"I have an excellent relationship with Benfica but not just because of my friendship with (coach Giovanni) Trapattoni," added Braida.
"I know (board member) Jose Veiga very well and I have known him for many years.
"But also, regarding Benfica, I guarantee that Rui Costa will be staying in Milan."
