The 35-year-old former Leicester man was a crucial cog in the Grecians' midfield last season in his second spell with the club.
And having returned to pre-season training with Paul Tisdale's men despite being out of contract, and featuring in the draw with QPR last week, Oakley put pen to paper on a new deal.
"I'm very respectful of the fact that he's waited for us to get in a position where we can (offer him a contract)," Tisdale told the club's official website.
"It says a lot about him. He's going to be a fundamental part of the development of our younger players, and of course he has a large part to play on the pitch too.
"He brings seniority and understanding of the game as we prefer to play it. It keeps continuity and a rationale through our philosophy, and he matches it - he wouldn't fit every club and not every player suits us, but Matt suits our club."