The new deal will keep the 29-year-old at White Hart Lane until the summer of 2015.
Defoe had been linked with a move away from Spurs in recent months.
Defoe has made 300 appearances and scored 119 goals for Tottenham.
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Since Guus Hiddink arrived at the helm, Chelsea have improved considerably after a tricky start to the campaign.
Newcastle United are staring down the barrel of relegation to the Championship for the second time in the past eight years.