Palhinha is now tied to Fulham until the summer of 2028, with the club holding the option for a further year.
The 28-year-old's previous contract would have expired in 2027.
Palhinha was close to joining Bayern Munich on transfer deadline day, but after travelling to Germany to complete his medical, Fulham pulled the plug on the deal after failing to land a replacement.
Palhinha joined Fulham from Sporting Lisbon for £20m last summer and made 35 appearances in the Premier League, scoring three goals.
He underlined his status as one of the most combative midfielders in the top flight by picking up 14 yellow cards.
"This signing of a new contract demonstrates where my focus and commitment is at this moment! There has been a lot of talk about my future these last few weeks," he wrote in an Instagram post.
"All of us in life work and fight to make our dreams come true and to reach the highest levels, whatever our profession. If there's one thing that has always characterised me in my career, it's my professionalism, regardless of the moments I've been through. I don't forget where I came from and all the effort and dedication I've always had in fighting to achieve all the goals I've set out to achieve. And I will continue to do so.
"Since I arrived at Fulham, the affection and connection created will last forever regardless of what happens, that can never be called into question. I am grateful for all the support that the fans have given me since my first official game. And it is with this same strength that my teammates and I are counting on in our next game at our Cottage."
Palhinha has won 22 caps for the Portugal national team.
