The 26-year-old came through the youth ranks at the Saint Mary’s stadium and has made 323 appearances for the club, scoring 33 goals.
Ward-Prowse was the subject of a £25m bid from Aston Villa earlier this summer which was turned down by Ralph Hasenhuttl’s side.
The dead-ball specialist has played every minute of the last two Premier League campaigns and reached a career-best of eight top flight goals last term.
"I'm over the moon. I think I'm probably the happiest man in the world right now. To come to this decision, I think has been massive and is a big step forward," said Ward-Prowse.
"To commit my future again to this football club is something I'm incredibly proud of and a new chapter begins now for me.
"It's probably the first time in my career that I've had that link away and that talk, but I think I was very keen to sit down and talk to the club and it's worked both ways; they've sat down and told me their admiration for me and the way they want me to lead the team - and this club has done so much for me, I can't put into the words the opportunities and chances that they've given me and I'm incredibly grateful for the club for doing that.
"I'm not finished yet here, I still have a lot left to give to this football club and I want to be there leading this team and ensuring I can give everything back and repay that faith the club have shown in me since I was eight years old."
He has won eight caps for the England national team but was overlooked for EURO 2020, having initially been named in the preliminary squad by Gareth Southgate.
