Kramarić, 34, accepted a salary reduction as part of the agreement and a post-playing role within the club has also been structured into the deal — a sign of the long-term relationship between player and club rather than a simple short-term extension.
He announced the news ahead of Hoffenheim's Bundesliga home fixture against VfB Stuttgart, in which he went on to score twice in a 3-3 draw, taking his tally to 140 Bundesliga goals across 11 seasons.
The announcement was described by sporting director Andreas Schicker as recognition of a bond that is rare in modern football.
"Andrej is one of the faces of the club and has left his mark on TSG over the past decade. Since his arrival more than ten years ago he has been a key pillar of our sporting success and an absolute leader.
"He is an exceptional footballer with special abilities, as well as an ambitious model professional who takes responsibility both on and off the pitch. We are very pleased that Andrej will continue to be part of our team."
Kramarić spoke about what the club means to him.
"I am very proud to be able to continue wearing the TSG shirt in the future. Everyone knows what this club means to me. I feel extremely comfortable here — the club and the region have long since become my second home. I am delighted that this special relationship will continue."
He also pointed to the sporting ambition that helped persuade him to stay.
"I feel in top shape and I am particularly looking forward to competing in Europe again with TSG. Under Andreas Schicker and Chris Ilzer, we as a team have embarked on an ambitious journey that is not yet over. We have big plans for this squad and I will give my all to help achieve our goals."
Kramarić joined Hoffenheim from Leicester City in January 2016, initially on loan before signing permanently. He has made 358 competitive appearances, scoring 156 goals and contributing 73 assists — both all-time club records.
Hoffenheim sit fifth in the Bundesliga with three games remaining, chasing their first Champions League campaign in eight years. Kramarić is expected to be in Croatia's World Cup squad this summer.