Italian media widely reported two months ago that Prandelli, who took over following the 2010 World Cup, was on the point of extending his contract, although he only put pen to paper on Monday.
"We're not going to go into any further details, our immediate objective is too important," he told reporters at the team's training camp outside Florence on Monday. "We will start talking about projects and programmes in September."
The 56-year-old has restored Italy's credibility and greatly improved their image during his four years in charge, leading to the final of Euro 2012 in the process.
Prandelli said he would only decide which seven players to cut from his 30-man squad after Saturday's friendly against Ireland in London.
"We've done a good week's work and everyone has responded brilliantly," he told reporters, referring to last week's physical training.
“I still have to wait and see how the players react to the workload we’re putting them under.
"We must learn to endure certain hardships not only on the physical level, but also from the psychological point of view,” he added.
One of Prandelli’s biggest dilemmas is in attack where he must decide whether there is room for strikers Giuseppe Rossi, who has been plagued by knee injuries and has only returned to full fitness this month, and the unpredictable Antonio Cassano.
Prandelli had no doubts on how his players should use Twitter and Facebook.
"We have decided to give everyone the possibility of expressing themselves as they think best," he said. "During the World Cup, they will have the possibility of relating to the fans with the greatest freedom."
(Reporting By Brian Homewood, editing by Pritha Sarkar)
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