All of the 36-year-old driver's previous deals were multi-year agreements, so the new deal has raised questions about how long the seven-time world champion will race for the Silver Arrows.
Lewis Hamilton has signed a one-year deal with Mercedes for the 2021 season, but the Formula One team's boss Toto Wolff indicated it could be his final season in the car.
The agreement ends the British driver's long-running contract saga with the dominant Silver Arrows ahead of the start of the new campaign in Bahrain next month.
The 36-year-old equalled Michael Schumacher's championship haul with his seventh title in 2020 and already has more race wins, pole positions and podiums than any other driver in the sport's history.
Hamilton said in a Mercedes statement on Monday that the team had "achieved incredible things together," while team principal Wolff said the partnership had "written itself into the history books."
Despite the delay, both driver and team always insisted it was a matter of when, not if, a new contract would be agreed.
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💬 "Together, we have decided to extend the sporting relationship for another season and to begin a longer-term project to take the next step in our shared commitment to greater diversity within our sport" - Toto Wolff— Mercedes-AMG PETRONAS F1 Team (@MercedesAMGF1) February 8, 2021
'We must prepare for life after Hamilton'
Hamilton said he was excited to be heading into a ninth season with Mercedes.
"Our team has achieved incredible things together and we look forward to building on our success even further, while continuously looking to improve, both on and off the track," he said.
"I'm equally determined to continue the journey we started to make motorsport more diverse for future generations and I am grateful that Mercedes has been extremely supportive of my call to address this issue."
The Mercedes driver has become an outspoken supporter of equality, diversity and the environment, making several forthright statements on human rights and racism.
Wolff said the team had always been "aligned with Lewis that we would continue" but the unusual circumstances in 2020 meant it had taken longer to finish the process.
The Austrian, who also backed Hamilton's drive for greater diversity in the sport, said the Briton's competitive record stood alongside the "best the sports world has ever seen."
"The story of Mercedes and Lewis has written itself into the history books of our sport over the past eight seasons, and we are hungry to compete and to add more chapters to it," he said.
But Wolff admitted in a press conference later on Monday that Mercedes must prepare for life after their superstar driver leaves the team.
'Young drivers are the future'
Red Bull's Max Verstappen, 23, is considered the natural successor to Hamilton, while Williams' George Russell, 22, impressed as his countryman's replacement in the penultimate round of the championship in Bahrain last year.
"Valtteri (Bottas) and Lewis have our 100 percent commitment and loyalty for 2021," said Wolff.
"We will support them with everything we have. We will then look beyond this year and say what is the line-up that we imagine in 2022 and onwards?
"Our first discussion will be with Valtteri and Lewis in respecting our values of loyalty and integrity, but on the other side, the young drivers are the future and we need to consider how we want to set ourselves up for the years beyond."
Hamilton eased to last year's title, wrapping up his record-equalling triumph with three rounds remaining at November's Turkish Grand Prix.
But the Briton was forced to miss the penultimate round in Bahrain after he contracted coronavirus.
Hamilton has won six of his seven titles with Mercedes since joining in 2013.
He won his first crown in 2008 when he was at McLaren.
Four of them have come in the past four seasons as Hamilton bounced back in style from the disappointment of losing the 2016 title to then team-mate Nico Rosberg.