The 30-year-old joined the Gunners in 2018 following a five-year spell with Turbine Potsdam in Germany and has developed into an integral player for Jonas Eidevall's team.
Walti has made 128 appearances for Arsenal across all competitions, scoring her first and only goal of the 2022-23 season so far in October's Women's Super League win over Liverpool.
The Switzerland captain also has seven assists to her name in an Arsenal shirt and is one of the first names on Eidevall's team sheet, starting 16 WSL matches so far this term.
During her debut year with Arsenal, Walti formed a part of the Gunners' WSL-winning squad in 2019 and added to that maiden triumph in this year's Women's League Cup, playing the full 90 against Chelsea in the final.
"It's special moment for me to commit my future to Arsenal and I'm very happy and excited," Walti told arsenal.com after putting pen to paper on a new contract.
"Arsenal means so much to me - it felt like home from the moment I joined and over the years I've built such a strong bond with this club and the community around it. This is an exciting time to be a part of Arsenal and I want to keep making new memories with this group."
Head coach Eidevall also expressed his delight as Walti's renewal, hailing the midfielder - who has over 100 caps for Switzerland - as one of the best in the world in her position.
"I'm delighted that Lia is staying with us at Arsenal. She is one of the best midfielders in world football and brings us so much in terms of leadership and presence," Eidevall added.
"Lia has played a pivotal role within this team during my time here and I'm looking forward to continuing to work together to achieve our goals."
Finally, Head of Women's Football Clare Wheatley added: "It's fantastic news that Lia has signed a new contract with us. Lia is an integral part of what we're building here at Arsenal and I'm sure I speak for everyone at the club and all our supporters when I say how pleased I am that she will continue to wear the red and white moving forward."
Walti has become the second Arsenal midfielder in a matter of weeks to commit her future to the club after captain Kim Little agreed to a new deal in the middle of April.
Walti was an unused substitute in Wednesday's 4-0 thumping of Brighton & Hove Albion, which keeps Arsenal in contention for the WSL title in third place, six points behind leaders Manchester United with a game in hand.
Next up for Eidevall's side is a trip to Everton next Wednesday before their final two games of the season against holders Chelsea and Aston Villa on May 21 and 27 respectively.