Terms of the deal, first reported Wednesday by The Times, were not disclosed.
Arena's "commitment to the L.A. Galaxy, the club's winning tradition and continued excellence on and off the field is unrivaled," Dan Beckerman, chief executive of Galaxy owner AEG, said in a statement.
Arena also issued a statement, saying "I'm honored to remain in this role with the preeminent soccer club in the United States."
The 62-year-old Arena is entering his seventh season with the Galaxy. He guided the team to two MLS championships, in 2011 and 2012, and also won two MLS Cups in 1996-97 when he coached D.C. United.
Arena also was coach of the U.S. men's soccer team from 1998 to 2006, coached the U.S. team at the 1996 Olympics and is a member of the National Soccer Hall of Fame.