Vick was due to make $15.5 million this season, a high price tag given his production the last two seasons, and the club had been expected to cut him if a restructuring was not agreed.
Newly hired head coach Chip Kelly, who featured an up-tempo offense at the University of Oregon, told reporters he had examined Vick's game film and thought he could be a good fit for what he has in mind with the Eagles.
Kelly said both Vick and Nick Foles would work with the first-team offense during the club's pre-draft mini-camp in April saying it is an "open competition" and that the job "will be won on the practice field."
Terms of Vick's restructured deal were not disclosed though it was assumed to include incentive clauses based on performance and playing time.
"I am grateful and proud to be a Philadelphia Eagle. My heart is in Philly and this community is important to me," the 32-year-old Vick said on Twitter.
Kelly said he had been impressed with the velocity on Vick's passes, his quick release and toughness.
"The one thing that attracted me to Michael after visiting with him, he's a competitor," Kelly said. "I don't think Michael is afraid of anything. He wants competition. I've seen Nick up close and personal and I think Nick wants it too."
Vick, a four-time Pro Bowler, has been mistake prone and injury prone the last two seasons, turning the ball over 33 times combined in the 2011 and 2012 seasons, during which he missed nine games due to injuries.
The 24-year-old Foles was 1-6 last season after taking over as Philadelphia's starter when Vick was sidelined with a concussion, throwing for six touchdowns and five interceptions.
Philadelphia was 4-12 for the season.
(Reporting by Larry Fine in New York; Editing by Frank Pingue)