While the Dodgers didn't release details of the contract, it is known to keep Kershaw, a 25-year-old left-hander, signed through the 2020 season. ESPN reported the contract has an opt-out clause after five years.
The value of the contract is reported to be $215 million -- at $30.7 million a year, the most for any player.
The largest previous deal for a pitcher was last year's agreement between Justin Verlander and the Detroit Tigers worth $180 million over seven years.
"It is an incredible privilege to be part of the Los Angeles Dodger organization for another seven years," Kershaw said in a statement Friday. "LA has become a second home to me and my wife and I'm excited for the opportunity to represent the city for a long time to come.
"I am particularly grateful to our team's ownership and front office for believing in me. With this contract comes tremendous responsibility, not only as a pitcher, but as a good steward of the resources given to me. To whom much is given, much is required."
Kershaw will be entering his seventh year with the Dodgers. He was 16-9 with a 1.83 earned run average last year when he won the Cy Young Award. He also took the Cy Young Award in 2011 and was second in the voting in 2012.
For his career, Kershaw is 77-46 with a 2.60 ERA. He has been selected to the All-Star game three times and won a Gold Glove in 2011.