The new deal will keep Insigne at Napoli until the summer of 2018.
Napoli president Aurelio De Laurentiis confirmed the new deal on his Twitter account.
He tweeted: “This morning I met Lorenzo Insigne and we extended the contract for five years. Since this season Lorenzo will earn 700,000 Euros plus bonus.
“I wish ‘Lorenzinho’ a great career in Napoli.”
Insigne turned down the chance to join Premier League side Sunderland earlier this summer.
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Liverpool have unveiled their new home kit for next season, sticking with the hugely popular retro styling of the current shirt.
The reputation of the Premier League means it is the most popular and one of the most watched leagues in the world.