Bottas signed a one-year deal with the team at the beginning of 2017, replacing retired world champion Nico Rosberg.
The Finn had already spent four years racing for Williams with a best finish of fourth in the 2014 F1 World Drivers’ Championship.
But Mercedes team boss Toto Wolff told Bottas he would be given a contract extension if he could challenge for the world title and sitting third with seven Grands Prix remaining, the Austrian has honoured his word.
Bottas said: “I am honoured and proud to continue to work with Mercedes-AMG Petronas Motorsport in 2018 and to remain part of the Mercedes family.
“Together, we continue to grow stronger day by day, and by keeping up our hard work I believe the sky is the limit.
“Since joining the team in January, I’ve enjoyed every day working with them.
“The welcome and the support from every team member and all the fans has been invaluable.
“As a driver, I’ve been able to learn and grow massively, and we have already enjoyed some really good moments this season that I will never forget.
“I’ve been very impressed by the mentality, commitment and the team spirit this team holds.
“Partnering Lewis has also been really good, and I’m enjoying the respect we have and the will to push this team forward together.”
Bottas had impressed at Williams alongside Felipe Massa but arrived at Mercedes without a race win to his name.
However, he broke that duck in Sochi at the Russian Grand Prix and has since added a second victory, at the Austrian Grand Prix, taking his total podium finishes in 2017 to nine.
And Wolff, who has been a close associate of Bottas since his debut in F1, admits he is proud of the progress the 28-year-old has made.
“We gave Valtteri a big challenge this year: joining the team at the eleventh hour, stepping up to the forefront of F1 and pairing with the sport’s best driver as his team-mate. With that in mind, his results have been probably even more impressive,” Wolff said.
“There have been ups and downs – more ups, fewer downs – and some great highlights like his two race wins in Russian and Austria.
“Overall, the balance of his performances and his upward trajectory made it a no-brainer for us to continue with him into 2018.
“For our team, the bonus factors are the respect and sportsmanship that have grown between our two drivers.
“The chemistry and dynamic between Valtteri and Lewis work and are what we need to take the fight to our competitors.”