The 34-year-old midfielder, who recently became the club's record goalscorer, would have been out of contract this summer.
But the England international maintained that he always wanted to remain at Stamford Bridge.
"I'm absolutely delighted," Lampard said in a statement on the official Chelsea website. "Everybody knows I always maintained the dream was to stay at Chelsea.
"We've been talking for ages and even though it went on for quite a period it was always amicable.
"I want to thank Mr Abramovich for everything he's done in making the dream a reality. I love this club, the staff, the players and especially the supporters, who have treated me fantastically since the day I arrived.
"The thought of helping the club to more success in the forthcoming years is all I ever wanted. I couldn't be happier."
Chelsea chief executive Ron Gourlay said: "Frank has been an important player for Chelsea Football Club for a long time and has played a significant part in the club's success.
"We have been talking to him since the end of last year and our discussions have been entirely positive throughout.
"We are delighted we are now announcing an extension to his contract which will keep him at the club until 2014."
Lampard is the third-highest appearance-maker in Chelsea's history with 607 outings and next season will be his 13th at Stamford Bridge after joining from West Ham in 2001.
He recently surpassed Bobby Tambling's 202 goals for the club by scoring both goals in the 2-1 win at Aston Villa.
During his time at Chelsea, Lampard has won the UEFA Champions League, the Premier League title on three occasions, the FA Cup four times and the League Cup twice.
On Wednesday, he was part of the side that beat Benfica 2-1 in Amsterdam to win the Europa League.