The Scot, 25, had 12 months remaining on his previous deal at Turf Moor before penning fresh terms until 2017.
Arfield scored nine goals in 49 games for the Clarets during the 2013-14 campaign.
"I'm delighted to have extended my deal with the club as this is where I want to be playing my football under this management," he told Burnley's official website.
"We had a great year last season and this is a club is going in the right direction so I'm made up to be a part of that."
Arfield joined Burnley from Huddersfield Town in July 2013.