The chancellor of the exchequer Phillip Hammond has requested that Carney remain for an extended period, which the Governor agreed to in a letter of acceptance.
British media had previously reported the finance ministry was keen for Carney to extend his stay and was having difficulty finding a suitable successor.
Sir Jon Cunliffe, the deputy governor with responsibility for financial stability, has also been re-appointed, it added.
Hammond said the government was devoting all its efforts to securing a deal on a new relationship with the European Union before Britain leaves the bloc in March next year but admitted the clock was ticking.
Though the extension is shorter than expected - most were predicting Carney would carry on for another year - the decision does help reduce one of the immediate uncertainties surrounding Brexit.
"I deeply appreciate your support and that of the prime minister".
"I am willing to do whatever I can in order to promote both a smooth Brexit and an effective transition at the BoE".
Ending days of mounting speculation, Hammond confirmed to lawmakers on Tuesday that the Canadian, who had been due to step down in June 2019, will extend his term to help steer the United Kingdom economy in the wake of Brexit.
"It is an important time and we have an important supportive role to make sure whatever Brexit the government negotiates, it is a success, and providing a measure of continuity should help that".
These are turbulent times and the Governor of the Bank of England is going to extend his period in the role before stepping down.
"He will install a measure of certainty on monetary policy, which provides some air cover through what will surely be an unpredictable spell".
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