The Croatia international moved to the La Liga side in the summer of 2016 after garnering a big reputation in the Serie A with Sassuolo.
Vrsaljko was tipped to become into the long-term replacement for 33-year-old Juanfran Torres at Atletico Madrid but he was restricted to only 25 appearances during his first campaign at the club.
The 26-year-old barely played during the opening half of the current season either, with Simeone opting to use versatile midfielder Thomas Partey and even centre-back Jose Maria Gimenez to cover the right-back during Juanfran's absences.
Earlier in December The Sun reported that Liverpool could take advantage of the situation to try to lure him to Anfield during the January transfer window.
Jurgen Klopp's first-choice right-back Nathaniel Clyne is yet to play a game this season due to a back injury and The Sun said that Liverpool could battle with Napoli to secure the services of the £22m-rated Atletico defender.
It was said that the Croatian international was also likely to leave the La Liga side in order to secure regular game-time somewhere else and enhance his chances of making the World Cup this summer.
However, Vrsaljko has since managed to turn his situation around at Atletico and establish himself as a regular in Simeone's starting line-up, providing three assists in his last seven La Liga games.
Late on Monday (5 February) Atletico decided to put an end to speculation linking him with a move away from the New Wanda Metropolitano by tying him to a new deal until 2022.
"Our club has reached an agreement with Sime Vrsaljko for which the Croatian international player will continue to wear our shirt until June 30, 2022, expanding one more year the contract that both parties signed in July 2016," Atletico confirmed though an official statement in the club website.
Vrsaljko also expressed his delight over the agreement and hoping to keep his starting role ahead of Juanfran during the business end of the campaign.
"I am very happy to be able to continue growing here," the right-back said. "I feel very comfortable and the only thing I'm thinking about is working every day to be important to the team."