''I am delighted because the club has shown a very big confidence and interest in me,'' said Essien.
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Essien is currently sidelined with a knee injury that has ruled him out of the World Cup, and he has not featured for the Blues since suffering a hamstring injury in December.
Nevertheless, Chelsea boss Carlo Ancelotti revealed Essien remains an integral part of his plans as he bids to build on his side's double-winning campaign of last season.
"I am very happy that Michael has agreed to extend his time with us, as it means he will continue to be a very important player for Chelsea long into the future," Ancelotti told Chelsea's official website.
Essien has made 185 appearances and scored 22 goals for Chelsea since arriving at the west London club in £26million deal from Lyon in 2005.