Westwood joined Villa from Crewe last August and went on to make 30 Premier League appearances for the midlands outfit during the 2012-13 campaign.
"This time last year I was still on pre-season with Crewe and now I'm signing another contract at Villa, it's a fantastic feeling for me," the 23-year-old told Villa's website.
Westwood had already been contracted to Villa through to 2016 from when he completed his move to them on transfer deadline day last summer, and this extension to 2017 is testament to how impressed boss Paul Lambert has been with the performances the Nantwich-born player has put in since then.
"I think a lot gets overlooked with Ashley but he has just come in here and has taken to it no problem whatsoever," Lambert said.
"He was captain at Crewe and played a lot of games in men's football before he came here, so he knew what it was about.
"If you look at the stats regarding his passing, they are terrific, something like a 91 per cent success rate. He never seems to give the ball away. He's been exceptional."
Lambert, who in his first season in charge at Villa guided them to a 15th-placed finish in the top flight last term, has been busy tying several of his players to new contracts this summer, including goalkeeper Brad Guzan, defender Nathan Baker and forward Andreas Weimann.
There have also been six new faces brought in and Westwood is certainly not about to take his place in the side for granted.
He said: "I love being here and I'm delighted to be part of a great football club.
"You look at the players the manager has brought to the club and they're all young and hungry. I just want to be part of that and hopefully we're building something special here.
"From a personal standpoint it's been great for me here. When I first came I set a target of making a few appearances. I was able to get myself in the team and I stayed there. This year's going to be a challenge again.
"The manager has brought some more young and hungry players to the club and the lads who have been here will have to push on and work our socks off to make sure the manager keeps selecting us.
"Competition for places is good. You need that as a player and you need it as a team. It's healthy for the squad."