The Spaniard was set to be out of contract at the end of the season but is now expected to stay until 2027.
The Gunners appointed Arteta, who had been working as a coach under Pep Guardiola at Manchester City at the time, to replace compatriot Unai Emery as boss in December 2019.
He led Arsenal to victory in the FA Cup final at the end of the 2019-2020 campaign to claim his first major trophy as a manager.
The London club have finished second to Manchester City in the Premier League in the past two seasons as the 42-year-old tries to steer the club to their first top-flight title since 2003-04.
A former midfielder, Arteta made 150 appearances for the Gunners during his playing career and also captained the side.
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