"I love this club and I am looking forward to the future with optimism and excitement," the 67-year-old said in a statement issued by the Premier League club to confirm the extension.
Wenger's contract had been due to expire at the end of the 2016/17 season and he had faced regular questions about his intentions, with supporters divided on whether he should stay or stand down.
"We are looking at what we do well and how we can be stronger everywhere. This is a strong group of players, and with some additions we can be even more successful," said the Frenchman.
"We’re committed to mounting a sustained league challenge and that will be our focus this summer and next season."
Arsenal came fifth in the Premier League this season, the first time they have finished outside the top four and failed to qualify for Champions League play since Wenger took over at the club in 1996.
However, Wenger was given a boost by Saturday's 2-1 win over champions Chelsea in the FA Cup final and was given the backing of the club's board at a meeting on Tuesday.
"Our ambition is to win the Premier League and other major trophies in Europe. It’s what the fans, players, staff, manager and board expect and we won’t rest until that is achieved," said majority owner Stan Kroenke.
"Arsene is the best person to help us make that happen. He has a fantastic track record and has our full backing."
Wenger has been Arsenal manager for 21 years, winning three Premier League titles and a record seven FA Cup trophies.
But it is 13 years since his last league triumph, the 2003/04 season when Arsenal went without a single loss, and some fans have called this season for him to be replaced.
Wenger's first task now will be to decide on the future of two of his key players, Germany midfielder Mesut Ozil and Chile forward Alexis Sanchez, who have both been linked with moves away from the club and have just one year left on their deals.
He will also be expected to sign new recruits to ensure his side are back among the contenders next season.
Arsenal said the Frenchman and chief executive Ivan Gazidis had conducted a full review of the club's on and off field activities "to identify areas for improvement to build a sustained title challenge."
Gazidis said there was no complacency.
"Our goal is to compete for and win trophies here and in Europe. Everything we do is designed to make that happen, and we will be working hard on and off the pitch this summer to improve and make a strong challenge next season," he said.
(Reporting by Simon Evans/Alan Baldwin; Editing by Alison Williams and Hugh Lawson)
Share
