The new deal will keep Giggs at Old Trafford until 2011.
Giggs’ previous deal was set to expire at the end of the season.
“I am delighted that I have agreed one more year,” Giggs told the club’s official website.
“I am enjoying my football more than ever and I am looking forward to hopefully winning more trophies with Manchester United.”
United boss Ferguson added: “Ryan deserves a new contract and I am sure that he will play for another two years.
“His form is fantastic at the moment and he is playing some of his best football.”