The club legend, now 37 years of age, scored 18 goals from 35 appearances as the Foxes won the Championship title at the first attempt since relegation from the Premier League.
However, with his contract due to expire at the end of the month and Leicester currently without a head coach, discussions had the potential to drag on without a resolution being reached.
Instead, Leicester have moved to confirm that arguably their greatest ever player had committed himself to a 13th season in the East Midlands.
Vestergaard joins Vardy in staying at Leicester
Another key player in the form of Jannik Vestergaard has also agreed to another year at Leicester, the centre-back penning a new three-year deal.
The 31-year-old featured on 42 occasions in the second tier last season, chipping in with two goals, and his physical presence at the back should continue to be asset back in the top flight
Vestergaard, a Denmark international, told the club's official website: "With the football and my situation having developed in a positive way, I'm just very happy to be here.
"It's something that fills me with some sort of pride as well that I went through the lows and I continued to work. I've come out on the other side and shown a little bit more of what I can contribute."
Three players leave Leicester, one still in talks
Leicester have revealed that they remain in discussions with Wilfred Ndidi, the midfielder seemingly assessing his options given the interest in his signature.
However, three other squad members - Marc Albrighton, Dennis Praet and Kelechi Iheanacho - will move onto pastures new at the end of their contract.
Albrighton, another club legend, was reduced to 12 substitute outings in the league during 2023-24, and he leaves having made 313 appearances as well as lifting a Premier League and FA Cup.
Praet's five-year stint at the club comes to an end with 107 appearances to his name. The 30-year-old Belgian midfielder made six starts and 11 substitute outings in the Championship during the last campaign.
Meanwhile, Iheanacho chipped in with five goals from his 23 appearances. However, the Nigeria international has proven to be one of Leicester's best additions over the past decade with 61 goals and 34 assists coming from 232 outings in all competitions.