Klose's current deal was due to run out in June and clubs in the United States and Germany were reported to be interested in acquiring his services.
However, the veteran Germany international, who is expected to be part of Joachim Low's FIFA World Cup squad provided he can recover from a hamstring problem, has opted to remain in Italy's capital.
Klose has made 26 appearances in all competitions for Lazio this season, scoring eight goals.
"I am very happy to be a part of this major project," the 35-year-old told Lazio's official website on Friday.
"I had many offers but I decided to continue this journey because I am part of a major project, and I have an important role to play.
Klose moved to Lazio from Bayern Munich in 2011 and boasts 34 league goals for the Stadio OIimpico club.
