The 22-year-old penned a one-year extension, which will keep him at Ashton Gate until 2006.
"We are delighted to have secured a player of Danny's calibre for a further year," City chairman Steve Lansdown told the club's official website.
"He has been one of our most successful players over the past twelve months and we felt it was appropriate to offer him some extra security to reward him for his development."
Coles is very highly rated by The Robins and Cardiff failed with a bid for him over the summer.
