Froome, who spoke to Cycling Weekly for an interview to be published in the January 14 issue, announced the contract extension on his Twitter account, with media being told at the Sky training camp in Mallorca.
“Team Sky have been fundamental to my success to date, so it was a very easy decision to commit to the Team until the end of 2018,” he said.
“Their values are my values and I am proud to ride for a team that has shown that you can win the biggest bike races in the world clean. 2015 was a fantastic year for me both professional and personally and this is a great kick start to 2016.
“I am more motivated than I have ever been and I have got big targets for this Olympic year. I can’t wait to start racing.”
The Kenyan-born Brit will be looking to defend his Tour de France title this July, on a route that suits his skill set with two individual time trials.
In August he will be among the favourites for the Olympic Games road race in Rio de Janeiro, with riders like Tony Martin tipping him to also win the time trial the following week.