The Spaniard's deal had been due to expire at the end of the 2026/27 season, but if he sees out his new contract, he will have been at the Emirates for more than a decade.
The club said in a statement on Wednesday that the new agreement, which was widely expected, "reflects our shared belief that the progress we've made and last season's success is the beginning of a special period in our history".
Arteta has reportedly been given a substantial pay rise after leading Arsenal to their first Premier League title in 22 years following three successive runners-up finishes.
"It's a privilege to commit my future to the club and to continue to work with exceptional people who want the best for Arsenal," said the 44-year-old.
"This club is unique, its character and the way it makes you feel, and I have a great sense of privilege that our journey together will continue.
"We have already built a special bond and created memories that will last a lifetime, and what is so exciting is that this is only the beginning of what we can achieve together."
Arteta, who replaced Unai Emery in December 2019, is now the longest-serving manager in the Premier League following Pep Guardiola's departure from Manchester City.
The former Arsenal captain came under significant pressure early in his managerial reign at the Emirates but has overseen the club's return to the top of English football.
Arteta also led the Gunners to their first Champions League final in two decades last season, but they lost to Paris Saint-Germain on penalties.
He has been in charge for 361 matches in all competitions, with his win percentage of just over 62 percent the best of any full-time manager in the club's history.
Arsenal are currently second in the Premier League, three points behind leaders City after a surprise 3-0 defeat to Brighton before the international break.
Club co-chairs Stan and Josh Kroenke said: "It has been an incredible journey so far and we are excited for what lies ahead in this special relationship.
"Last season was an incredible moment in Arsenal's history, a moment in which we created memories that will last a lifetime. We're determined to create many more in the years ahead.
"We share a special bond with Mikel. We are so proud of everything we have achieved since he returned to the club in 2019."
Arsenal return to Premier League action with a home match against Leeds on Saturday.