Stoltenberg, a former prime minister of Norway, has been the transatlantic alliance's leader since 2014 and his tenure had already been extended three previous times.
The decision means continuity at the top of NATO as its 31 members grapple with the challenge of supporting Ukraine in repelling Russia's invasion while avoiding a direct conflict between NATO and Russian forces.
Stoltenberg, 64, is widely seen across the alliance as a steady leader and patient consensus-builder.
The decision to extend his tenure to October 1, 2024, comes ahead of a summit of NATO leaders in Vilnius, Lithuania, next week.
Stoltenberg said he was honoured by the decision.
"The transatlantic bond between Europe and North America has ensured our freedom and security for nearly 75 years, and in a more dangerous world, our alliance is more important than ever," he said.
US President Joe Biden and leaders of other NATO countries also hailed the decision.
"With his steady leadership, experience and judgment, Secretary General Stoltenberg has brought our Alliance through the most significant challenges in European security since World War II," Biden said in a statement.
Diplomats and analysts give Stoltenberg high marks for keeping NATO together over Ukraine, striking a balance between those demanding maximum support for Ukraine and others urging more caution out of fear of sparking a global conflict.
Ukrainian Foreign Minister Dmytro Kuleba said Stoltenberg's extension was "excellent news".
"Tough times demand strong leadership. Jens Stoltenberg has demonstrated just that," he tweeted.
Stoltenberg also won widespread praise for guiding the alliance through severe transatlantic turbulence during the US presidency of Donald Trump, who openly speculated about taking the United States out of NATO.
But the decision to stick with Stoltenberg also reflected a failure to reach consensus on a successor after he declared in February that he was not seeking a further extension.
"NATO member states have decided logically enough that the best secretary general currently on the marketplace is the one they already have. Experience matters especially at one of the most testing times in NATO's history," Jamie Shea, a former senior NATO official now with the Chatham House think-tank, said.
Among those considered as potential successors to Stoltenberg were UK Defence Secretary Ben Wallace and Danish Prime Minister Mette Frederiksen.
But neither they nor others floated by diplomats appeared to have the support of all NATO members as the Vilnius summit approached.
With leaders keen to avoid wrangling there over a new secretary general, they turned back to Stoltenberg.
His next tasks include having to manage differences over how involved NATO should become in Asia, with the United States pushing for a greater role in countering China while others such as France insist NATO must maintain focus on the North Atlantic area.
