The team said on its Web site it had until midnight Friday to exercise the option or offer the 33-year-old Abreu a $2 million contract buyout.
The 2008 season will be Abreu's second full campaign with AL East club after he was acquired from Philadelphia in a six-player deal in July 2006.
In the 2007 season, he batted .283 with 16 home runs and 101 RBI. He scored a career-high 123 runs.
"Bobby Abreu possesses a unique skill set and has proven to be a durable and reliable asset to this club," said Yankees’ General Manager Brian Cashman. "Consistency has been a hallmark throughout his career, and we are excited to work with him again as we look forward to the 2008 season."
In his 12-year career, Abreu is batting .300 with 221 homers and 984 RBI in 5,881 at-bats.