Karlsson moved to the top ranks of NHL defensemen last season after breaking Senators team records for assists (59) and points (78) by a blueliner in a single season.
The 22-year-old former first-round pick tied the team mark for goals by a defenseman with 19.
Senators owner Eugene Melnyk said Karlsson had quickly become "one of the cornerstones of our franchise," adding, "Erik will be a large part of the future success that Senators fans can look forward to."
Karlsson has 37 goals and 149 points over 216 career games in three seasons with the Senators.
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