"Atletico Madrid and Diego Pablo Simeone have reached an agreement on the coach's contract extension for the next four seasons," the La Liga club said in a statement on their website (www.clubatleticodemadrid.com) on Tuesday.
Argentine Simeone, who will be 43 next month, took over after the sacking of Gregorio Manzano midway through last season and promptly led the side to Europa League glory with victory over Spanish rivals Athletic Bilbao in the final.
Atletico went on to beat continental champions Chelsea to win the European Super Cup and are riding high in second in La Liga and through to face city rivals Real Madrid in the Copa del Rey final.
A combative midfielder described as "playing with a knife between his teeth", the no-nonsense Simeone has transformed the team into a tight defensive unit and the goals of Colombia striker Radamel Falcao have helped underpin their success.
As a player Simeone helped Atletico win the Liga and Copa double in 1996 before moving on the following year and returned to the club for a second playing stint between 2003 and 2005.
A four-year contract is rare in Spain, known for its impatient club presidents and demanding fans.