With less than 12 months to run on his previous deal, the Swedish international's future at the Hawthorns had been called into question.
However, he put an end to that speculation by signing on for an extra four years with the Baggies.
"A key factor in me signing was because I see the club going in the right direction long term," said Olsson.
"That is quite rare and quite unique in football today and the reason why we are doing well now is because we have kept our key players over the last three or four seasons. Our performances this year are a product of that.
"If I didn't see the club going in the right direction, I wouldn't have signed. Our squad is by far the best one we've had in my four years here at least."
The 29-year-old joined West Brom in 2008.