The Portuguese midfielder, who joined the Andalusian club 13 years ago and holds the record for the most appearances for the team in the top flight, will remain at La Rosaleda until June 2014, and he has the option of signing on for another year at the end of next season.
After agreeing the terms of the new deal, the 33-year-old told the club's official website that he had taken a step closer to his dream of hanging up his boots while at Malaga.
He said: "I'm very happy to have signed a new contract, I have always wanted to be able to retire at Malaga.
"Both parties have reached an agreement that we're both pleased with and now I hope to end my career here.
"I have been at this club for 13 seasons, which hasn't been easy, but the club and I have both helped each other throughout this period.
"My family and friends are delighted that I'm staying here, and now I'm going to focus on enjoying this great moment for the club."
Duda joined Malaga in 1999 from Portuguese side Vitoria de Guimaraes.
After initial loan-spells at Cadiz and Levante, he became a regular fixture in the side until their relegation from La Liga, after which he joined fellow Andalusian club Sevilla.
Dude returned to Malaga on-loan from Sevilla in the summer of 2008 to take part in their first season back in the top flight, before moving back permanently the following year.
He played little part in last season due to a recurring calf injury, making just three starts in the league and Champions League.