Nuno, who turns 41 this month and hails from the island of Sao Tome and Principe off the west coast of Africa, replaced Juan Antonio Pizzi in July after Valencia finished eighth in La Liga and failed to secure a berth in continental competition.
Singapore billionaire Peter Lim recently completed his takeover of the club and hopes are high he will stabilise Valencia's finances and help them revive past glories.
They last won La Liga under Rafa Benitez in 2004 and were losing Champions League finalists in 2000 and 2001.
With 18 matches played this season, Valencia are fifth in La Liga, a point behind fourth-placed Sevilla after Saturday's 1-1 draw at Celta Vigo.
They are through to the last 16 of the King's Cup and have a 2-1 advantage over Espanyol ahead of Tuesday's second leg in Barcelona.
Nuno's previous contract ran until the end of this season with an option for a further year depending on results.
(Reporting by Iain Rogers, editing by Ed Osmond)
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