The 27-year-old striker scored 16 goals in the Championship last season to help Nigel Pearson's men clinch the title and a return to the Premier League for the first time since 2004.
Vardy's rise to the top flight has been rapid, considering that just over two years ago he was helping Fleetwood Town out of the Conference and into the Football League.
Since moving to the King Power Stadium, Vardy has notched 21 goals in 70 appearances and is thrilled to be extending his stay at Leicester until 2018.
"I'm over the moon. We all know that the club wants to keep improving and stay in the Premier League, and I definitely want to be a part of that," he told the club's official website.
"Everyone knows the way that I've come back into football [from non-league], and we managed to get promoted last season, but now it's all about making sure that we stay in the Premier League.
"Nigel Pearson brought me here and he wants the club to maintain their Premier League status. He was a big influence [on me signing a new deal] and now I've just got to repay him on the field."
Vardy is the latest Leicester player to sign fresh terms since the club won promotion, with Danny Drinkwater, Matty James, Liam Moore, Wes Morgan and David Nugent all extending their stays at Leicester.
