"Manchester United is the only club I have ever wanted to play for so I am delighted to have signed for another year," Neville said.
Neville's signature follows on from another United veteran, Ryan Giggs, agreeing a new deal last week.
Sir Alex Ferguson welcomed the news that Neville would remain at least until the end of next season.
"Gary, Ryan and Paul (Scholes) are the spirit of Manchester United and so we are delighted that Gary has signed for another year," he told the club website.
"Gary is a true professional and I admire how he has overcome an injury which kept him out for over a year, returning as good as ever. He deserves this new contract and we are very happy to have him here."
Neville was sidelined by a combination of ankle and groin problems dating back to March 2007, and only returned to competitive action in one match last season, against Roma in April. He has started nine Premier League games so far this season, featuring in a further three as substitute.
Neville made his club debut 17 years ago against Torpedo Moscow. He has since played 565 first team matches and scored seven goals.