The 41-year-old former Blackpool, Burnley and Tranmere midfielder helped mastermind Barnsley's thrilling relegation escape after teaming up with manager David Flitcroft and first-team coach Martin Scott at Oakwell in December following the sacking of Keith Hill.
All three of the Tykes' new management team put pen to paper on their respective new deals at a press conference and former Fleetwood manager Mellon is confident they can deliver continued success.
"First of all we're really excited about the opportunity of carrying on the work that we've started," Mellon told Press Association Sport.
"It's been fantastic. We've really enjoyed the relationship we've had with the players and the fans and we want to carry that on.
"The short-term aim is to win the next game. Clubs like Barnsley can't look too far ahead in the Championship because we're not one of the bigger clubs, who set out to try and win it.
"We'll set out to win the first game and then move ahead. If you start setting yourself goals like the play-offs, you're setting yourself up for failure, or over-estimating what might happen.
"We're very ambitious. We came here because we think we can do well. We want to do well. We'll try and win the first game, then the next one and then the one after that.
"We'll adjust accordingly wherever we are and whatever the game throws at us we're very confident we can deal with it."