Vardy joined Leicester from Fleetwood Town in the summer of 2012 and has so far scored 164 goals from 388 appearances.
He scored 24 goals as the Foxes won the Premier League title under Claudio Ranieri in the 2015/2016 season.
Vardy still had one year remaining on his contract at the King Power Stadium.
The 35-year-old also counts the FA Cup and Community Shield among his list of honours with Leicester.
Vardy told LCFC TV: "I'm obviously over the moon. Once I heard it was something the club was looking at, there was only one thing that was going to happen, and I was going to sign it. The decision was easy.
"I've been here long enough now that I feel like part of the furniture. I think you can see with the way we're trying to play, the way the club's wanting to go, that it's going to be onwards and upwards.
"To carry on being involved with that, I was over the moon. Now it's all about this season and finishing as high as we can.
"My legs are still feeling great so I'll carry that on helping the club as much as I can, whether that's scoring or assisting, that's what I'm here to do."
Leicester are winless in their three Premier League games so far this season, picking up just a single point.
Vardy scored seven goals in 26 international caps for England before excusing himself from national team call-ups in August 2018.
