The 56-year-old Swiss tactician, whose existing deal was due to expire in 2015, will now remain at the club until June 2017.
'A long way to go'
"Lucien's worked wonders here over the last three years," beamed Gladbach sporting director Max Eberl. "He was integral to keeping us in the top flight in 2011 and guiding the club into Europe in 2012. We've got a long way to go yet and look forward to continuing our work together."
Favre joined the Foals in February 2011 and kept them in the Bundesliga via the relegation play-off, before leading the club to a fourth-placed finish and qualification for the UEFA Champions League play-offs a year later. Gladbach finished eighth last term and remain firmly in the European race this season, trailing fifth-placed VfL Wolfsburg by just three points after 24 games. However, they have also gone nine games without a win, falling to a 2-1 home defeat to FC Augsburg last time out.