The 21-year-old England international, who joined the north London side's academy as an eight-year-old, has been a key figure in the last two campaigns, having already made 178 first-team appearances.
Saka scored 14 goals and registered 11 assists in all competitions for Arsenal this season. He was also the club's top scorer in the previous campaign, netting 12 times.
Saka's previous deal was due to expire at the end of the 2023-24 season, and British media reported that the new deal runs until 2027.
Saka joins goalkeeper Aaron Ramsdale in signing a new deal at the Emirates with Gabriel Martinelli and Gabriel agreeing to long-term contracts earlier this season. Arsenal now hope to complete deals with captain Martin Odegaard and William Saliba.
"Retaining our best young talents is key to our continued progress, and Bukayo represents such an important part of our squad now and for the future," manager Mikel Arteta said.
"I'm just really happy. I think this is the right club, the right place to make the next step. It's a beautiful club - look where we are," Saka said in a statement.
"For me, it's about achieving my personal ambitions... Then I have all the right people around me in terms of family, and when I come to the training ground, my team mates, the coaching staff.
"I think I have everything I need to become the best player I can be, and that's why I'm happy to stay here and be here for the future because I really believe that we can achieve big things."
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