Reports had suggested that the 59-year-old would be relieved of his duties this summer following criticism from a number of supporters regarding the style of football that the team had played since their return to the Premier League in 2012.
However, following discussions between Allardyce and co-chairmen David Sullivan and David Gold, it has been decided that the former Bolton Wanderers and Newcastle United boss would retain the Upton Park hotseat.
"We have a very clear vision of how we want West Ham United to operate under our joint ownership. Although not everybody understands the 'West Ham Way', we do and we respect it as we have been supporters all our lives. We believe this is about a philosophy that is not just about the style of play, but the whole ethos that surrounds the club," Sullivan and Gold said in a statement.
"Sam was asked to give us a detailed presentation on his vision for next season and during this he assured us that he can deliver that ethos to West Ham United and we have agreed to support him with the resources that he needs. We have mapped out a way forward with him that will ensure our much deserving fans have more to cheer about next season.
"We should also stress, though, that while improvements do need to be made, Sam deserves credit for the job he has done thus far after securing promotion in his first year and two respectable Premier League finishes in the two years thereafter. We have also seen the likes of Mark Noble, James Tomkins and Winston Reid all make huge progress under his management, which in turn contributed to our impressive record of 14 clean sheets last season."
Meanwhile, Allardyce added: "I look forward to taking the club forward and improving the squad for next season to try and achieve the plans we have set out in our very productive meeting last week."
Last term, the Hammers finished 13th under Allardyce's stewardship.