The Chilean led 'Los Boquerones' for three years - between managing Real Madrid and Manchester City - in what was one of Malaga's most successful spells.
'The Engineer' took the side ot the Champions League quarter-finals in 2012-13 after finishing La Liga in fourth place the previous year.
Pellegrini returned to Andalusia on Tuesday for the unveiling by the city's council and, speaking to the club's official website, he remarked: "They were three wonderful years.
"I am very happy that the team is now climbing to return to La Liga, which is where it belongs."