The new four-year deal will keep Petrov at Villa until 2012.
Petrov joined Villa in a £6.5million deal from Celtic in June 2006.
“I am delighted. It is only just a year ago that people were concerning themselves about whether Stiliyan had a future here,” said manager Martin O’Neill.
“But he has battled back so much so that I’d like him to be around here for the next few years.
“If every person shows the same determination and willingness and drive that Stiliyan has shown the last year, there will be a future for anyone at the club.”