The 33 year-old moved to Leicester on a free transfer in 2015, joining from Bundesliga side Schalke.
He became a key part of the Foxes team that remarkably won the Premier League title, making 32 league appearances in his maiden campaign in English football.
Fuchs also featured nine times in the Champions League the following season, when Leicester were knocked out by Atletico Madrid in the quarter-finals, and has been given a new contract by Brendan Rodgers despite only making three Premier League appearances this term.
"I'm thrilled to be signing a new one-year deal with Leicester City," Fuchs told the club's website after his new deal was announced on Wednesday.
"It's an exciting time for everyone, with a new training ground being built and some fantastic young talent coming through.
"Our ambition is to play good football and continue to improve. The club and our fans have always been great with me and I want to give back as much as possible. I can't wait to see what next season brings for this football club!"
Leicester wrap up their Premier League campaign with a home clash against Chelsea on Sunday, when Danny Simpson and Shinji Okazaki will say their farewells to the club.
Both players, part of Claudio Ranieri's title-winning Foxes team alongside Fuchs, are leaving at the end of their contracts.
"Danny and Shinji have been a vital part of the club's success and Leicester City would like to wish them every success in the next step of their journeys," a club statement read.
"They will be forever welcomed back at King Power Stadium as either opposition players or as friends of the club."