The Croatia international moved to the Serie A outfit from Dinamo Zagreb two years ago and has since made 62 league appearances in the Italian top flight.
Kovacic has netted seven goals in all competitions so far this season, but was shown a straight red card in the 1-1 draw with Juventus on Tuesday for a dangerous challenge on Stephan Lichtsteiner.
"I thank the president and the club for the opportunity," Kovacic said.
"They are beautiful things and we hope to continue on this path. I am very happy for the renewal."
"It's a great investment by Inter," he said. "I think he can improve a lot.
"He can become a great midfielder. We're happy to have him here."
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