The Blues captain has been a Premier League stalwart under Jose Mourinho this season, and has showed the kind of form that once saw him labelled one of the best defenders in the world.
He has been linked with a move away in the summer, as his current £150k a week deal is set to end in June.
Terry, 33, had wanted a two-year extension at Stamford Bridge, but Chelsea have a policy of only offering 12 month extensions for players over the age of 30.
Terry has accepted this, and is hoping to start his 17th season as a Chelsea professional in August.
The former England captain had been linked with a move to Turkey in the summer, with Roberto Mancini’s Galatasary reportedly ready to offer him a lucrative contract.
But Terry feels he can still achieve plenty under Mourinho at Chelsea, a fact that was emphasised with their win over Manchester City at the Etihad on Monday night.
Terry was once again outstanding as the Blues ran out 1-0 winners, in a result that saw them close the gap on league leaders Arsenal to two points.