It comes after a recommendation from the national government that the partial lockdown should apply to all the city.
More than 850,000 residents in 37 neighbourhoods have been confined this week to their areas unless they have a reason to go elsewhere.
Maximum capacity in shops and restaurants has been reduced and parks closed.
Those limitations will now be expanded to 160,000 more people in areas where more than 1,000 people per 100,000 residents have tested positive for coronavirus in the past two weeks, the Madrid regional government announced on Friday.
These are the highest rates in Europe.
Throughout Madrid and its surrounding region, gatherings are already limited to a maximum of six people.
National Health Minister Salvador Illa said the Spanish government is recommending tougher measures including a partial lockdown for the whole of Madrid and its 3.3 million residents.
He said the threshold of contagion incidence to decide which suburban town to confine should be lowered to 500 cases per 100,000 inhabitants, which is roughly twice the national average.
Saying that “shortcuts are not valid”, Mr Illa told reporters: ”I don’t want to hide that very tough, complicated weeks are ahead of us but we are going to succeed if we do what we need to do.”
The limitations in Madrid have been protested against by locals who claim they are being targeted because they live in poor neighbourhoods with denser populations and worse infrastructure than more affluent areas, and where more people use public transport to get to work.
Politicians at both national and regional levels have been at odds over the response since the first day of the pandemic, although they recently agreed to negotiate a co-ordinated response to the outbreaks in Madrid.
The truce lasted less than a week, with competing press conferences on Friday.
Antonio Zapatero, deputy health chief of the Madrid region, said he wants to continue working with the central government to contain the outbreaks but more time is needed to see if the current restrictions are having any effect.
“What we do, we do it based on technical criteria,” he said, adding “If decisions need to be taken, Madrid will take them”.
Both Mr Zapatero and Mr Illa agreed on recommending all citizens stay at home as much as possible.
Spain is fighting cumulative coronavirus caseload over 700,000, with the worry focusing in Madrid and its surrounding region, where more than a third of the new infections are happening.
The total death toll since the start of the pandemic reached 31,118 on Thursday.
