Xavi's new contract will take him through to the summer of 2025.
The 43-year-old signed a contract until the summer of 2024 when he replaced Ronald Koeman as manager in November 2021.
Xavi has led Barcelona to one Spanish La Liga title and one Spanish Super Cup in his time in charge.
An official statement from the Spanish champions read: “FC Barcelona and coach Xavi Hernández have reached an agreement for the extension of his contract until 20 June 2025 with the option of an additional year.
“The signing took place this Friday the Spotify Camp Nou offices in the presence of president Joan Laporta; first vicepresident Rafa Yusta; Economic vicepresident, Eduard Romeu and the director of the Area of Football, Anderson Luis de Souza, ‘Deco’. “
Xavi added: "We arrived at a very difficult time, with very difficult sporting, economic and psychological circumstances," he added, in reference to his arrival in November 2021.
"We have worked very well from the presidency to the sports direction [department]. It is a process of construction and training, but we are competing and playing good games.
"This should be the season of confirmation in terms of play and results. I, personally, feel very confident. I feel strong in this regard. The staff is grateful and the players are enjoying themselves. We are on the right track, but we can't stop having humility and [need to keep working]."
