The former Colchester boss, who signed a deal until the end of the current campaign when he returned to the club in December, has lifted Rovers from the bottom of League Two on Boxing Day to a mid-table finish.
And the club made extending the 62-year-old's stay at the Memorial Ground, which has seen 12 wins and just five defeats, one of their top priorities.
Chairman Nick Higgs told the club's official website: "I am delighted to have agreed a contract with John to remain at Bristol Rovers.
"He has done a fantastic job over the last four months, completely changing our fortunes and helping to retain our league status.
"We were in a terrible place when he took over before the turn of the year, and he has transformed the players and the spirit at the club.
"John understands what Bristol Rovers Football Club is all about, and that is why I wanted him to be the man to take us forward.
"Our aim is certainly for promotion next season, and I believe that John is the man who can guide us to League One and beyond."
Ward previously took charge of Rovers between 1993 and 1996 before spells with Bristol City, Cheltenham, Carlisle and Colchester.