The deal will extend the 35-year-old Welsh winger's United career to just a few months short of his 37th birthday.
Giggs joined the club as a youth player and made his debut against Everton in the old First Division in March 1991.
"I feel fit and I'm enjoying my football more than ever," Giggs told the club's official website.
"This is an exciting young team and the spirit is great in the dressing room. I want to be a part of that and achieve even more success."
United manager Alex Ferguson described Giggs as a true professional.
"His lifestyle, the way he looks after himself, his desire to always want to win is a credit to him and also an inspiration to any young kid who wants to become a footballer," Ferguson said.
"He is like a young boy in the way that he plays and, although he wants to play every game, he understands that by using his experience when it matters is a benefit to him and the team."
Giggs has enjoyed an extraordinarily successful career.
He has played in all 10 of United's Premier-League winning campaigns, has won the FA Cup four times, the League Cup twice and has two Champions League winners' medals.
In last year's Champions League final, when he scored United's final penalty in the shootout, Giggs surpassed Bobby Charlton's club record of 758 appearances and he is on course to top 800 by the end of the season.
NEWS: Sir Alex keen on Giggs becoming Sir Ryan
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