The 36-year-old’s previous deal lapsed in 2020 but he will now race for Mercedes for a ninth season.
Hamilton became the sport’s most successful driver ever in 2020, breaking Michael Schumacher’s all-time win record and drawing level with the German’s seven titles.
“Our team has achieved incredible things together,” said Hamilton.
“We look forward to building on our success even further, while continuously looking to improve, both on and off the track.”
Part of the new deal involves a commitment from Mercedes to continue to work with Hamilton on seeking “greater diversity and inclusion in motorsport”.
They will work on creating a new joint charitable foundation and Hamilton says the manufacturer has been “extremely supportive” on the issue.
“I’m proud to say we are taking that effort further this year by launching a foundation dedicated to diversity and inclusion in the sport,” he added.
“I am inspired by all that we can build together and can’t wait to get back on the track in March.”
Why only a year?
The duration of the contract is said to have been a mutual request that reflects a desire from both sides to have the flexibility of a one-year deal.
It is also a measure of the lateness of the agreement – it is highly unusual for a contract be agreed so close to the start of the season, especially with a driver of the importance of Hamilton – as well as the uncertainty facing all F1 teams heading into 2021.
This season is the first under a budget cap, initially set at $145m (£114m), but being reduced by $5m a year over the following two seasons, and in 2022 the sport introduces a major change of technical regulations aimed at closing up the field and making the racing closer.
Teams are also in the midst of other major negotiations with wide consequences, such as the possible introduction of an engine-performance freeze from 2022, and a driver salary cap is also potentially on the horizon.
Mercedes, however, emphasise that the decision to set up together with Hamilton a foundation on inclusivity and diversity reflects their shared vision and that the relationship extends beyond a simple contract to drive racing cars.
‘Hungry to compete’
Hamilton’s defence of his title begins at the Bahrain Grand Prix on 26 March and if he can win a fifth drivers’ championship in a row he will surpass Schumacher’s mark of seven, set in 2004.
“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,” said Mercedes team principal Toto Wolff.
“We have always been aligned with Lewis that we would continue, but the very unusual year we had in 2020 meant it took some time to finish the process.”
Mercedes did not state the value of Hamilton’s new contract but his previous deal was for £30m a year, with up to a further £10m available as bonuses.
He has won six of his world titles at Mercedes, with the other arriving at McLaren in 2008.
Mercedes have won the constructors’ championship seven times in a row and the drivers’ world title has also gone to one of their drivers for seven straight seasons, with Nico Rosberg’s 2016 success sandwiched in between Hamilton’s six wins.