The 24-year-old, recently named the club's player of the year, has had a huge impact in his first season in Glasgow, scoring nine tries in 22 appearances.
Last week, Matawalu was also named in the 2012/13 RaboDirect PRO12 dream team.
His contract was due to expire at the end of next season but the new deal means he will remain in Glasgow for at least another two years.
Matawalu said: "I've loved my first season in Glasgow and I am really excited to have signed an extension to my contract. Everything here is so professional and it's the best place for me to continue my development.
"I've learnt so much since I came to the Warriors and my game has really improved. I like playing in the PRO12 - it's a strong league with a number of good players.
"We're a very close squad and I'm really enjoying my rugby just now. The supporters have been absolutely fantastic and I'm looking forward to playing in front of them at Scotstoun for at least another two years."
Glasgow Warriors head coach Gregor Townsend added: "This will give everyone at the club a massive boost ahead of our semi-final this weekend (against Leinster). Niko is a very popular player and he's worked extremely hard since joining the club in the summer.
"He's become a real fans' favourite with his style of play and we're all delighted he's staying in Glasgow."
- Sports & Recreation