He said that his long-term objective is to win the Champions League, but stated that his team must first qualify for the competition.
In the meantime, the 42-year-old has targeted victory in the Copa del Rey final against arch rivals Real Madrid.
"I thank the directors for having wanted to renew my contract," Simeone told a press conference. "We can continue with this philosophy and this project that has brought us together.
"This renewal is a success for the club, in terms of continuing to construct a balance.
"My objectives? To aspire to win the Champions League you have to qualify for it. First things first. Thereafter, we can respond in the summer. Hopefully we can also beat Madrid in the cup final. We'll work for it."
The final takes place on May 17.