Guardiola cited "unfinished business" as a key reason for his decision to prolong his relationship with City. Guardiola's main priority in the next two years is to win the Champions League.
The Arsenal boss, who has a long history of working with Pep Guardiola, says Guardiola's focus is on winning the Champions League.
On Thursday, Manchester City announced that they had signed a two-year contract with Pep Guardiola. Therefore, Guardiola will be in Etihad Stadium until 2023.
This contract has another meaning. In 2023, Guardiola's tenure with Manchester City will reach seven years, and this is the longest time Guardiola has coached a team.
Guardiola said his main reason for extending his contract with City was "unfinished business." Arteta believes that winning the Champions League Cup is Guardiola's priority.
"I'm very pleased for him as he's never been so long at a football club, so the fact he's extending his contract means he's extremely happy there, that he's found his place, that he feels valued there and has the chemistry with players, fans and ownership," said Arteta.
"I want the best for him and if he's extended it means he's very happy and he feels that's the best place for him to continue his career, so congratulations.
"Knowing him and his ambitions and how competitive he is, unfinished business means he wants to win every competition every year for sure.
"If he needs to win the four domestic trophies again and he can do it I'm sure he's going to try. Obviously, Europe is a massive thing and he wants to move the club towards the Champions League win and that's his way.
"In the medium to long term that was one of the things he wanted to achieved, so I'm sure it will be a focus point."