He had planned to take a break following New Zealand's success in the tournament in England last autumn.
But New Zealand Rugby said in a statement he had extended his stay for another two years and will share the added responsibility of skills coaching with assistant coach Ian Foster following the departure of Mick Byrne.
"Steve presented a pretty compelling case, especially with the team facing the challenge of rebuilding and continuing its growth this year," Smith said.
"It was a huge campaign last year and I was ready for a break, but I realised that it would be an exciting time to still be involved. I love this team and want to do everything I can to help them succeed," he added.
Hansen said: "I'm over the moon to have Smithy recommit to the All Blacks. He's rightly recognised as one of the world's best coaches."
Smith first joined the All Blacks as technical adviser in 1998-99, having appeared 35 times for his country as a flyhalf.
He was appointed head coach in 2000 but lost his job a year later, going on to coach English club Northampton before returning to the international fold as one of Graham Henry's assistants.
After three seasons in a similar role with Super League side Chiefs, Smith rejoined New Zealand last year.
Since helping the All Blacks regain the World Cup, the 58-year-old has been linked with a number of jobs, including those of head coach with both England and Harlequins.
(Reporting by Neville Dalton, editing by Pritha Sarkar)
