The England midfielder had been expected to at the end of this season due to Chelsea's policy of moving on their older players, but the star - who broke Chelsea's all-time scoring record last week - has been in superb form of late and Chelsea confirmed on Thursday that a new deal has been finalised.
"I'm absolutely delighted," said the 34-year-old.
"Everybody knows I always maintained the dream was to stay at Chelsea. We've been talking for ages and even though it went on for quite a period it was always amicable.
"I want to thank Mr Abramovich for everything he's done in making the dream a reality. I love this club, the staff, the players and especially the supporters, who have treated me fantastically since the day I arrived.
"The thought of helping the club to more success in the forthcoming years is all I ever wanted. I couldn't be happier."
Despite the widespread talk about Lampard being moved on at the end of the season, Blues chief executive Ron Gourlay attempted to suggest that a deal had always been in the works.
"Frank has been an important player for Chelsea Football Club for a long time and has played a significant part in the club's success," Gourlay said.
"We have been talking to him since the end of last year and our discussions have been entirely positive throughout."
Lampard has now won every domestic and European competition with the Blues and will have the chance to add more to his personal resume in 2013-14 with the London club.
"It has been a great season for the club," he said after Wednesday's Europa League triumph. "It is huge (to win the Europa League). Last year was incredible. We had fought so many years to win the Champions League so that was an absolute stand-out night for us but this year you could feel the buzz in Amsterdam."
He added: "We didn't want to go in to the Europa League. We wanted to stay in the Champions League this year but we have shown a great determination to win it from the moment that we have been in it and when you look back now, and you've got a full set (of domestic and European medals), it makes you very proud."