The 18-year-old left-back broke into the Pompey first team last season and has now committed his future to Fratton Park as boss Guy Whittingham continues his rebuilding of the squad.
Butler told the club website: "I'm very pleased. I got a taste of playing first-team football in the second half of last season and now I'm looking forward to being involved for a whole season at this club.
"I learnt so much in the space of six months and now I feel I can give a lot more to the team.
"I'm starting to get bored at home already, so I just want to get back playing as soon as possible.
"There are a lot of new players coming, so hopefully we can have a good season, give the fans something to cheer about and bring the good times back to Pompey."