The 35-year-old Peruvian's deal was due to expire at the end of June, but he is now under contract until the end of next season.
Pizarro is currently in his second spell at Bayern, originally joining in 2001 for a six-year stint, before returning in 2012.
During his time in Bavaria, Pizarro has won five Bundesliga titles, five DFB-Pokal trophies and the UEFA Champions League, and the former Werder Bremen striker is delighted to be staying at the club.
"I am very proud that I get to play again for Bayern next year. For me there is no better club in the world," he told their official website.
Pizarro scored 10 goals in 17 Bundesliga appearances last season as Bayern clinched the league and Pokal double in Pep Guardiola's debut campaign at the club.
And Bayern chief executive Karl-Heinz Rummenigge is thrilled with Pizarro's decision.
"Claudio has proved again this season how he is a goal threat and important for the team," he explained.
"We are very pleased that we can continue to count on him."
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