O'Kelly returned to the Banks's Stadium in May following two previous stints on the Saddlers coaching team and has continued to form a good relationship alongside manager Dean Smith.
O'Kelly's new deal, which takes him until the end of the 2015/16 season, comes just a month after Smith signed a similar extension to his contract.
"It's always nice to feel wanted," O'Kelly said. "I have built up an excellent relationship with Dean and indeed all of the staff at the club.
"Things are done in the right way here. We are constantly looking to improve and develop and that can only be achieved by creating the right environment, and I feel that we have that here.
"Dean and I will see things differently sometimes, which is a good thing, but we work well together and I look forward to a positive future."
Having finished ninth in League One last term, the club's highest finish since being relegated from the second tier in 2004, Walsall are currently ninth in the table again, just one point off the play-off places.
Boss Smith added: "I am delighted Richard has signed a new contract in line with mine. We work well together and he is an integral part of what we are trying to achieve here.
"Richard possesses many qualities and has so much knowledge about the game. He knows how we work and I am pleased that our partnership will continue.
"This is a long-term project and Richard is key to it going forward."