Pedrosa has been with Honda all his career, winning the former 125cc and 250cc world championships that are now Moto3 and Moto2 respectively, before making his MotoGP debut in 2006.
"I think it's best for me to continue with the company I was with at my very first race. I'm happy that the negotiations have been quick, and now I can just focus on racing," said the Spaniard.
Pedrosa had been linked to Yamaha, whose reigning champion Jorge Lorenzo is moving to Ducati at the end of the season. But Spanish media have reported that Yamaha have signed his compatriot Maverick Vinales from Suzuki.
An announcement is expected later in the week.
(Reporting by Alan Baldwin, editing by Richard Balmforth)
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