President Enrique Cerezo said on Thursday that the former Atletico player would remain at the club until at least June 2017, when his contract expires.
"Simeone will stay next season," Cerezo told Spanish radio station Cadena Ser.
The former Argentina midfielder has won La Liga, the Europa League and King's Cup in his four and a half seasons at the helm.
Chelsea goalkeeper Thibaut Courtois, who played under Simeone in Madrid, says the coach is the key factor in the team's success.
"I remember his words two years ago, 'When you believe and you work it can be done'," Courtois told Onda Cero radio.
"Simeone knows how to motivate the group very well. Since he arrived Atleti have grown.
"Atleti have less talent than Barcelona, Real or Bayern Munich but they still beat you. The unity that Atletico have is very good."
Courtois was on loan in Madrid and played in the club's Champions League final defeat by Real two years ago.
"It wasn't the day for Atletico to win the Champions League but perhaps now it will be their time," the Belgium international said.
"I remember after the final in Lisbon my team mates said they would return, they were certain. Seeing the work they have done, it was logical they would return.
"They deserve to win it having beaten Barca and Bayern en route to the final," added Courtois.
(Writing by Adriana Garcia; Editing by Tony Jimenez)
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