The 33-year-old France international’s contract at Stamford Bridge was due to expire at the end of this season. He was strongly linked to Inter Milan in the January transfer window but a move could not materialize.
Giroud has had to play second fiddle to Tammy Abraham for much of the campaign but he led the line superbly when the Englishman was out injured shortly before the season was suspended in March because of the Coronavirus pandemic.
Giroud joined Chelsea from Arsenal in January 2018 and has so far won the FA Cup and Europa League in his time at the club.
"I am delighted to continue my journey and adventure at Chelsea," Giroud said in a statement.
"I can’t wait to get back to playing and enjoying competitive football with my team-mates. I’m looking forward to wearing the Chelsea shirt again, especially in front of our fans at a full Stamford Bridge, whenever it is safe to do so."
The former Montpellier man has made 13 appearances in all competitions for Chelsea this season, scoring three goals.
"Since I have been back at Chelsea, Olivier has been brilliant as a professional and as a man in general," said manager Frank Lampard.
"He has great qualities to help the squad both on and off the pitch, not only with his talent but with the example he sets every day and the experience he brings to our young squad. I am very pleased that will continue next season."
