Terry, 28, who has been at Chelsea since he was 14, turned down three approaches to join Manchester City in the close season.
British media estimated the deal as worth 41 million pounds to the centre-back, or 160,000 pounds a week, making him the highest-paid player in the country.
"Chelsea is delighted to confirm that John Terry has signed a new five-year contract that keeps him at the club until the end of the 2013/14 season," the club said in a statement on their website.
"This reaffirms both John's and the club's long-stated desire for John to be at Stamford Bridge for the rest of his playing career."
Terry, who made his Chelsea debut in a League Cup match in 1998, has played more than 400 matches for the club and led them to the Premier League title in 2005 and 2006.
He won the FA Cup three times with Chelsea, the current FA Cup holders, and two League Cups.
He also took them to the Champions League final in 2008, although his missed penalty in the shoot-out after the teams had fought out a 1-1 extra time draw in Moscow allowed Manchester United to lift the European Cup instead.
