Pearson led the Foxes to the Championship title last season, but his team have picked up just 17 points from their opening 24 matches of the current Barclays Premier League campaign and sit at the foot of the table.
Following reports of Pearson being dismissed earlier in the day, Leicester issued a statement to say he remained in charge.
The statement, published on the club's official website, read: "Leicester City Football Club would like to clarify its position relative to its manager, Nigel Pearson.
"Contrary to media speculation on Sunday evening, Nigel remains the club's first team manager. Reports to the contrary are inaccurate and without foundation.
"Nigel, his staff and the first team squad are entirely focused on Tuesday night's trip to Arsenal and our continued efforts to secure our position in the Barclays Premier League."
For several hours on Sunday, Pearson's future at the club looked to be in doubt, but Leicester's late-night statement put a halt to talk that he had left.
The 51-year-old former Southampton and Hull boss was involved in a bizarre incident in Saturday's 1-0 home defeat by Crystal Palace.
He was knocked over on the touchline by Palace midfielder James McArthur after a tackle by Marc Albrighton, resulting in what was initially a friendly exchange between the Foxes boss and Scottish player.
Pearson even playfully grabbed McArthur around the throat before helping him to his feet, only to then prevent him from returning to the pitch by grabbing hold of his shirt.
That may not have reflected well on Pearson, but there is a lot of goodwill at the club for the man who brought them back to the top flight.
Former Leicester striker Gary Lineker, now host of BBC show Match of the Day, saw the early reports and thought Pearson was on his way out.
Lineker wrote on Twitter: "Not overly surprised that Nigel Pearson has been fired by Leicester, given they're bottom, but he's been a very good manager of the club.
"Not sure if yesterday's bizarre touchline behaviour had anything to do with Pearson's exit, but certainly shows how the job gets to 'em all."
However forecasts of Pearson's demise proved inaccurate, and on he continues in his job.
Pearson began his second spell as Leicester manager in November 2011, less than 18 months after departing for Hull.