Bottas joined the team in early 2017 and has started 13 races for the Silver Arrows so far. Having scored 197 points, the Finnish driver currently holds third place in the drivers' championship.
This season alone, Bottas has so far secured nine podiums - equalling the number of podiums he scored in his Formula 1 career before this season.
In a statement, Mercedes boss Toto Wolff said, "We gave Valtteri a big challenge this year: joining the team at the eleventh hour, stepping up to the forefront of F1 and pairing with the sport's best driver as his team-mate. With that in mind, his results have been probably even more impressive."
"There have been ups and downs - more ups, fewer downs - and some great highlights like his two race wins in Russian and Austria. Overall, the balance of his performances and his upward trajectory made it a no-brainer for us to continue with him into 2018," he added.
Meanwhile, Bottas said that he was honoured and proud to continue to work with Mercedes.
"I am honoured and proud to continue to work with Mercedes-AMG Petronas Motorsport in 2018 and to remain part of the Mercedes family. Together, we continue to grow stronger day by day, and by keeping up our hard work I believe the sky is the limit," Bottas said.
"As a driver, I've been able to learn and grow massively, and we have already enjoyed some really good moments this season that I will never forget."
"I'm happy to have celebrated my first race wins in a Silver Arrow. However, there's always room for improvement and I still have not shown my full potential. I will continue to work hard on and off the track, to further improve my driving, get even better results and show that putting their trust in me was the right decision," he added. (ANI)