Cole's previous contract was set to expire at the end of the season and was allowed to leave the club during the summer. Cole was also given permission to hold talks with other clubs to negotiate pre-contract offer during the transfer window.
The 32-year-old left-back was heavily linked with a move to Paris Saint-Germain, Real Madrid and even Manchester United but Cole chose to stay with the Blues for another year after agreeing a massive offer reported to be in the region of £200,000-a-week.
"I am pleased I will be starting my eighth season at Chelsea. I have great memories here and I enjoy coming to training every day," Cole was quoted as saying in the clubs official website.
"The staff are amazing and I enjoy training with the lads. I have been able to fulfil nearly all my ambitions at Chelsea.
I have won the Champions League, the League, I have won FA Cups here but of course you don't want to stop winning trophies and being at a big club, you are always fighting to win a trophy," he said.
"Being here for seven years and being at Arsenal before that playing for trophies, you never lose that hunger," Cole, who has 99 caps for England, said.
"I wanted to stay at Chelsea because we are always fighting and challenging for trophies. That desire and the will to want to win things have not gone."
Cole has played 293 games for Chelsea since joining them from Arsenal in 2006. During his time with Chelsea, Cole has won the Premier League thrice, four FA Cups, the League Cup and the UEFA Champions League.