There had been talk that Guardiola would not return after the end of this season, but that was put to rest at a press conference held Wednesday in Barcelona.
Wednesday's announcement ended weeks of speculation over the 39-year-old's future. His contract had been set to expire in June.
"It was an unanimous decision that Pep should continue as coach," said outgoing Barcelona president Joan Laporta.
Part of the uncertainty regarding Guardiola's future resulted from Laporta's lame duck status as Barca president. A new president will elected by club socis (members) in the spring.
In Guardiola's first season after replacing Dutchman Frank Rijkaard, Barca won Spain's La Liga, Copa del Rey and Super Cup, the UEFA Champions League, UEFA Super Cup and the FIFA Club World Cup.
"Sooner or later, I know I will have to stop being coach of FC Barcelona and I know that I'm not going to be better off anywhere else," said Guardiola, a former Barcelona star.
Guardiola did say he preferred to sign a short-term deal -- which will keep alive of an eventual move to Manchester United when Alex Ferguson retires.