The deal, which will take Giggs beyond his 40th birthday, has been agreed after an outstanding series of performances from the veteran and will stop speculation that he would retire at the end of the season.
The midfielder is already the most decorated player in British football history and will be winning his 13th league championship should United press home their 12-point advantage over Manchester City in the Barclays Premier League.
His next appearance will be his 1,000th senior appearance, which includes games for Wales and Team GB at the London Olympics.
Sir Alex Ferguson said: "What can I say about Ryan that hasn’t already been said? He is a marvellous player and an exceptional human being. Ryan is an example to us all, the way in which he has, and continues to, look after himself.
"He has fantastic energy for the game and it is wonderful to see. Ryan seems to reach a new milestone every week and to think that he now has 23 unbroken years of league goals behind him is truly amazing in the modern-day game.
"His form this year shows his ability and his enjoyment of the game are as strong as ever and I am absolutely delighted that he has signed a new contract."
Giggs told Manchester United’s official website: "I am feeling good, enjoying my football more than ever and, most importantly, I feel I am making a contribution to the team. This is an exciting team to be part of, with great team spirit, and we are again pushing for trophies as we head towards the business end of the season.
"I am delighted to have signed a new contract. I would like to thank Sir Alex and the coaching staff and I would also like to thank David Gill who has been a tremendous support over my many years here."
Ferguson confirmed Giggs would make his 1,000th appearance at some point this week, either against Norwich on Saturday or Real Madrid on Tuesday.
He also said Phil Jones has a "fighting chance" of being fit for the Real return, while Robin van Persie has shrugged off the hip injury when he fell into a television camera at QPR last Saturday.
"Phil starts running today," said Ferguson.
"He won’t be ready for tomorrow but he has a fighting chance for Tuesday.
"Robin van Persie has trained this week. He will be available for tomorrow."
Ferguson also confirmed he expects Paul Scholes to play some part in the run-in after his recent fitness problems.
With the Real Madrid game so close, and so delicately poised at 1-1, United could be forgiven for concentrating exclusively on the Old Trafford tie given they hold a 12-point lead on Manchester City with 11 games remaining.
However, Ferguson insists that will not be the case.
"Tomorrow is an important game for us," he said.
"Tuesday will look after itself. That is an occasion whereas tomorrow is a more mundane, practical situation.
"But we need to win.
"I can assure you my players will not be thinking about Tuesday."