Francesco Guidolin will continue to roam the touchline at the Liberty Stadium.
Guidolin, 60, joined the Welsh side in January, agreeing to a short-term deal that ran until the end of the current campaign. Mired in a relegation battle, Guidolin oversaw the Swans' rise to safety, achieving what was the club's lone goal in the second half of the season.
"Francesco fully deserves the chance to continue his good work into the new campaign. He was prepared to come into the club at such a difficult time and put himself in a pressure situation with the club fighting for survival," said Swansea chairman Huw Jenkins.
"He has achieved the goal of securing top-flight football for this club with plenty to spare and has earned the right to start afresh next season. It's going to be another challenge for everyone, but we are looking forward to seeing how far he can take this squad of players over a full season."
Swansea, sitting 11th in the table on 46 points, will close out the year with a home match against Manchester City on Sunday.
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