The 18-year-old England youth international had just one-year left on his previous deal at the Emirates Stadium and had started attracting interest from the likes of Liverpool and Borussia Dortmund.
Saka made his debut for Arsenal in the Europa League last season but it is in the 2019/2020 campaign that he has firmly established himself in the Gunners first team, racking 33 appearances across all competitions, scoring three goals and providing eleven assists.
A winger by trade, his versatility has seen him being deployed in a number of positions, including debutising at left back in the absence of Kieran Tierney and Sead Kolasinac.
Saka tweeted: "London is my home. Arsenal my team. I'm so happy to finally announce my contract extension.
"I love playing for this club and I'm looking forward to what the future holds. The hard work continues so I can continue living my dream."
Gunners boss Mikel Arteta told the club website: "Bukayo is a talented and intelligent young player.
"He has impressed me with his work ethic and attitude to learn and adapt, and it has paid off in his performances. I am excited to continue working with him to develop him further, and for him to help us achieve our goals."
Gunners technical director Edu added: "This is something everyone involved wanted to happen and we are delighted that Bukayo has signed a new long-term contract.
"He's making great progress and is one of a number of young players who have developed through our academy. This is so important for us as we move forward as a club."
