The Spaniard's previous deal was due to expire at the end of the season, but the 44-year-old has now agreed to continue a tenure that began with his appointment in December 2019.
Arteta has overseen a significant transformation at Arsenal, guiding the club to the Premier League title last season after three consecutive second-place finishes. He has also won the FA Cup and three Community Shields during his time in charge.
Arsenal reached the Champions League final last season for only the second time in the club's history, although they were beaten by Paris Saint-Germain.
"This club is unique, its character and the way it makes you feel, and I have a great sense of privilege that our journey together will continue," Arteta said.
"We have already built a special bond and created memories that will last a lifetime, and what is so exciting is that this is only the beginning of what we can achieve together."
Arteta, who previously worked as Pep Guardiola's assistant at Manchester City, is already the longest-serving manager in England's top four divisions.
Arsenal chief executive Richard Garlick said the club wanted to establish a "winning era" with Arteta and praised his belief and understanding of what was required to build a lasting project.
The new agreement reportedly represents a significant increase on Arteta's previous £10 million annual salary, with bonuses potentially taking his earnings higher.
Arsenal have also confirmed that members of Arteta's coaching staff have signed new four-year contracts.
Co-chairs Stan and Josh Kroenke said the club were "so proud" of what had been achieved since Arteta's return in 2019 and looked forward to creating more memories in the years ahead.
Arteta's new deal could see him remain at Arsenal for more than a decade, with the manager now focused on extending the success of the Premier League champions.
