The 44-year-old had recently been linked with a move to Tottenham, with former Pompey boss Harry Redknapp now in charge at White Hart Lane.
However, Coles has committed himself to Pompey by penning a deal which will keep him on the South Coast until at least 2011.
In the wake of the news, Portsmouth chairman Peter Storrie has expressed his delight at retaining the services of a coach he classes as one of the best in the business.
"Everything that was written in the papers about David leaving was completely wrong," he told the club's official website.
"He has always been completely happy here and we are delighted to extend his contract.
"He's one of the best goalkeeping coaches in the country, so naturally we wanted to keep him at Pompey."
Coles has been at Portsmouth for almost three years, and during that time has helped David James cement his place as England's No. 1.
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