The new deal will keep Papac at Ibrox until 2011.
“I am so happy to sign a new deal with Rangers,” Papac told the official club website. “To spend five years with a club like Rangers is something special and I aim to give all I can in the next three years.
“My dream is now to win the championship. We had success last year with the two cups and then we got to the Uefa Cup final which was fantastic.
“However, the main target this season is the SPL title and I would love to win that this season.
“I believe we have the players to achieve this dream but know we have a battle on our hands.
“I have to keep working hard and I will do that. I want to be successful at this great club.”