Nico Rosberg is understood to have committed his long-term future to Mercedes.
The new deal is believed to be for two years and ties Rosberg to the German manufacturing giant through to the end of the 2016 Formula One season.
Although refusing to confirm the length of the contract, a Mercedes spokesperson said: "We have long-term relationships with both of our drivers."
Rosberg is currently in his fifth season with Mercedes having joined the team from their inception in 2010 following a buy-out of Brawn GP.
Success, however, has been hard to come by as it was not until two years later and the 2012 Chinese Grand Prix, that Rosberg finally claimed his first victory in F1 at the 111th attempt.
Further wins followed in Monaco and at the British Grand Prix last year, and again in Australia at the start of this season.
Although Mercedes are dominating the current campaign, Rosberg has had to settle for the runner-up spot at the last four races behind team-mate Lewis Hamilton.
Heading into this weekend's race in Monaco, Rosberg now trails the Briton for the first time this season by three points.
Rosberg's contract extension means he will partner Hamilton for at least one more season in 2015, with the latter's own deal due to expire at the end of next year.
It also lays to rest recent speculation Mercedes were eyeing a move for Ferrari's Fernando Alonso.
On a recent visit to one of Mercedes' car factories in Spain, Dieter Zetsche, chairman of parent company Daimler, hailed Alonso as "probably the best driver on the Formula One grid".
Zetsche added: "He has always proven it, and in uncompetitive cars."
With Mercedes motorsport boss Toto Wolff also describing Alonso as "a monster" of the racetrack, conjecture has naturally followed the two-times world champion would be joining Mercedes.
Only this week Alonso bemoaned the lack of praise he was receiving from "people...close to you".
Although the inference appeared to suggest Alonso was criticising Ferrari, it is understood he was instead pointing an accusing finger at the Italian media.
That resulted in a remarkable statement on Thursday from Ferrari president Luca Di Montezemolo, who put a consoling arm around Alonso by claiming him to be "the best driver in the world, who always gives 200 per cent in the races".
Di Montezemolo, who criticised the "so-called experts" for "always looking for a polemical situation that simply doesn't exist", at least does not have to worry about any further potential Mercedes overtures with Rosberg now staying put.