Friday's announcement comes just 24 hours after the record champions confirmed they had taken an option to sign Kingsley Coman permanently from Juventus, on a contract through until 2020.
"It means I will be here for a long time and we're looking to win more titles in the years to come," Thiago told fcbayern.com. "I'm very happy at this club, with this team and all the people here at Bayern Munich. I feel great here, my kids are here in Munich so this is perfect."
Thiago joined Bayern from Barcelona in 2013 and has won the Bundesliga in each of his three seasons with the club. A fourth straight league title could follow, although Thiago has made no secret of his desire to win the UEFA Champions League with the Bavarians.
"100 per cent – my aim is the same as it has been since I got here, I want to win the Champions League and I'm staying here until I win this trophy," he said.
Bayern's CEO Karl-Heinz Rummenigge praised Thiago for the job he has done since arriving in Munich almost four years ago and says the club's fans really do have a lot to look forward to now.
"He's shown, particularly in this fourth year, what quality he's got and he's one of our key players so we're delighted he's extended his contract," he said. "Thiago is one of the best and most coveted midfielders in Europe. This is a signal that we are counting on him in the future, so everything is wunderbar."
Watch: Thiago and Rummenigge discuss the midfielder's contract extension