The 32-year-old has amassed 164 goals in 290 appearances during two separate stints in North London, firstly joining as a 17-year-old in 2008 and spending five trophy-laden years at the club.
Little departed in 2013 to sign for Seattle Reign in the United States, but she returned to Arsenal in 2017 and has been on the books with Jonas Eidevall's side since.
The former Scotland international has five goals and two assists to her name from 16 appearances this season, but the Gunners announced on Monday that she would miss the rest of the season with a hamstring injury.
Little sustained the problem during last month's Champions League clash with Bayern Munich, but just one day later, she has put pen to paper on a new deal with Arsenal.
"I'm delighted to sign a new contract at Arsenal. Thinking back to when I first joined at the age of 17, I'm so proud of the progress that we have made together," Little told arsenal.com.
"Arsenal has been such an important part of my life and over time this club has become my home. It continues to be a privilege to represent Arsenal and I'm still so motivated to move this club forward and to be a part of its success."
Head coach Eidevall added: "Kim is a world-class player and an exemplary professional. Her contribution here over many years has been outstanding and we are so pleased that she will continue to represent Arsenal for years to come.
"On and off the pitch, Kim is such an important part of what we are trying to achieve here at Arsenal Football Club so we are all delighted with this news."
Meanwhile, Clare Wheatley - Head of Women's Football at Arsenal - hailed Little's "immense" contribution to the North London club while wearing the armband, saying: "Few people are so universally respected in the way that Kim is in the world of football.
"She is a wonderful player and an outstanding person and we are so delighted to confirm that Kim will be staying at Arsenal.
"She has been one of the best players in the world for over a decade and her influence as captain of this football club is immense. We look forward to seeing her back on the pitch very soon."
Little has won five top-flight titles, three FA Cups, one Premier League Cup and five League Cups during her two spells at Arsenal, who defeated Chelsea in the final of the latter competition last month to end a four-year trophy drought.
Eidevall's side sit third in the Women's Super League table ahead of Friday evening's clash with table-toppers Manchester United - who sit three points ahead of Arsenal having played a game more - and they will also take on Wolfsburg in the semi-finals of the Champions League, with the first leg taking place on Sunday at the Volskwagen Arena.