Karl, who has been the Nuggets' coach since January 2005, has inked a three-deal, The Denver Post reported.
Nuggets Vice President of Basketball Operations Masai Ujiri said keeping Karl on board was important after the team dealt stars Carmelo Anthony and Chauncey Billups to New York last month.
"He's done a tremendous job since arriving in Denver, and particularly with the unique challenges of this season," Ujiri said. "With George on the bench, we have a bright future and everyone here is focused on finishing the season strong."
The Nuggets have played well since the trade and stood at 37-27, in line for a seventh straight playoff appearance under Karl, 59.
The veteran mentor, who returned to the bench this season after a bout with neck and throat cancer, is in his 23rd season as an NBA head coach and holds a 1,023-698 career record.