Phillips, who started all three Tests for the 2009 Lions against South Africa last summer, has extended his stay at the Liberty Stadium by a further four years.
And the 27-year-old admitted that his desire to become a Lion for a second time led him to turn down offers from a host of other big-name clubs.
"The Ospreys have helped me to develop as a player no end over the last three years - the improvement in my game has allowed me to represent Wales and the Lions while I've been here," said Phillips, who beat off competition from Mike Blair and Harry Ellis to become the Lions' first-choice No9 in South Africa.
"I want to further my international career with Wales over the next few years and get on the next Lions tour, and if I'm going to achieve those longer-term aims, then the Ospreys and the coaches here will clearly be a big factor in that, like they have been with everything I've achieved since coming here."
The extended contract, rumoured to make Phillips the first million pound Welsh player over the duration of his contract, means he will remain an Osprey until at least 2014.
Phillips has only just returned from a lengthy injury lay off but his undoubted quality has saw him win a recall to the Welsh squad after just 40 minutes of regional rugby.
His performances for the Lions helped establish the former Scarlets and Cardiff Blues star as one of the best players in world rugby and the Ospreys are unsurprisingly delighted to have secured his services.
"Mike is a player who has shown at the very highest level what he can do," said Ospreys coach Sean Holley.
"He has had some injury problems, but I know that he is determined to show that they are behind him, and to reach the heights of last summer with the Lions once again, which is excellent news for the Ospreys and Wales.
"He's a different type of scrum-half to any others that we have here. His physicality and enthusiasm causes endless problems for the opposition and we are naturally delighted that another quality player sees his long-term future here with us."