The new deal will keep Essien at Stamford Bridge until the summer of 2015.
“I am delighted because the club has shown a very big confidence and interest in me,” he told the club’s official website.
“I am looking forward to coming back and enjoying my football and winning more trophies with the club.
“That is why I am here. I think it is one of the most important contracts in my career.”
“I am very happy that Michael has agreed to extend his time with us, as it means he will continue to be a very important player for Chelsea long into the future,” said Chelsea boss Carlo Ancelotti.