The 34-year-old's new deal will see him through until the summer of 2015 at which point he has announced he will retire after 14 years at the Westfalenstadion.
"Borussia Dortmund, our wonderful team, the fans and the city of Dortmund has been my home for many years. That's why I've decided to continue this connection," he told bvb.de.
"I look forward to my last year in the Bundesliga. The right time is then for me to begin a new life."
The captain joined Dortmund in 2001 from Freiburg and was a member of the Bundesliga-winning teams of 2002, 2011 and 2012.
"Sebastian is an important key player, has a huge wealth of experience and on top of that is a valuable role model," said sporting director Michael Zorc.
"We are very happy that he is with us until 2015 and wants to end his impressive career in the BVB shirt."
Klein has also won 31 caps for Germany and was in the squad for the World Cups in 2002 and 2006.