The Premier League club has secured the 21-year-old's services until 2024 after the midfielder enjoyed a breakthrough season in 2018-2019.
Barnes, who joined the Foxes at the age of nine, started the campaign on loan at West Bromwich Albion but was recalled in January having impressed at the EFL Championship side and went on to make 16 top-flight appearances.
He now looks set to continue his growth under the guidance of Brendan Rodgers after his new deal was announced on Friday.
Barnes said: "I'm delighted. For me, the progression that I've had at the club, from joining at such an early age to the position I'm in now, is something I want to continue, so when a new contract was mentioned, it was a no-brainer.
"There's going to be a lot of work going in over pre-season, and I think as a team we're really strong at the minute, so next year could be a big year for us."
Rodgers' side, which finished ninth last term, begin the new season at home to Wolverhampton Wanderers.