Middlesbrough have confirmed that Williams has signed a new four-and-half-year deal, ending Newcastle's hopes of signing the defender.
Pardew went to the Riverside to watch the player in action against Sunderland in the FA Cup and liked what he saw, as the 23-year-old was easily the best Boro player on the field.
He had 18 months left on his previous deal, but has committed himself to the club until 2016.
Williams, who can play in midfield or defence, has been attracting interest from a host of Premier League clubs in recent months, and both Newcastle and Bolton had bids for him rejected in January.
Williams: "I've always said I wanted to stay.
"I'm happy here and that's the main thing. I'm settled and get on well with the manager and the lads.
"I've no reason to leave except for my dream of playing in the Premier League - and I want to get there with his club.
"My fiancee has settled here, I know the town and have a lot of friends here. I couldn't be happier, to be honest."
Boro boss Tony Mowbray: "Rhys is an important cog as we move forward trying to build a team to get us into the Premier League.
"This is an important statement from the club to try to tie down one of the players we feel we can move forward with."