Vardy, 35, marked 10 years at the club in May and has scored 133 Premier League goals in 272 appearances.
He scored 24 goals in 2015-16 as they won the Premier League title and he has also won the FA Cup and played in the Champions League since joining from non-league Fleetwood in 2012.
“I’m obviously over the moon,” said Vardy, who has scored 164 goals in 387 appearances in all competitions.
“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.”
Vardy’s contract was due to expire in 2023 and he had been linked with Manchester United during the transfer window.