The 35-year-old passed a medical on his return from holiday before signing the deal, fulfilling a long-standing wish from head coach Claudio Giraldez to keep him at the club.
Alonso, who can play at centre-back or left-back, will now have the chance to spend four seasons in Vigo, having already helped Celta reach the Europa League in each of the last two.
Celta confirmed the news in a statement: "Since his arrival in Vigo, Marcos Alonso has become a key piece in Claudio Giraldez's system.
"His versatility, powerful striking of the ball and ability to compete at the highest level have allowed him to take on a leading role in the Celeste defence, being a reference both on and off the pitch."
The club added: "With an extraordinary career and total commitment to Celeste values, Marcos Alonso now begins a new stage with the enthusiasm to keep entertaining Celta supporters in a season that has just begun and already promises great emotions."
Speaking after signing, Alonso said he was pleased to extend his run in Galicia.
"I'm very happy. These have been two years of hard work and progress, and now it's about continuing to move forward and grow together," he said, praising Giraldez as "a fundamental pillar of the club" who deserved much of the credit for the team's recent success. Alonso added that staying up remains the priority for the season ahead rather than setting lofty targets.
Alonso was Celta's most-used outfield player last season, making 43 appearances and playing 3,759 minutes, scoring once. Across his two years at the club he has featured 76 times and scored five goals.
Alonso joined Celta after a wandering career that included spells in the Premier League and Serie A, and has since become one of the dressing room's senior voices under Giraldez. With the extension signed, he is one of several first-team players now tied to longer-term deals as Celta look to build on back-to-back European qualifications.