Dardai took charge of Hertha Berlin in February and succeeded in saving the club from the threat of relegation, keeping them up on the final day of the season.
His reward is a contract which has no end date, which is a measure of the faith his club have in the 39-year-old.
“Right from the start it was our objective to continue with Pal beyond the end of the season,” said Hertha’s general manager Michael Preetz.
“This agreement with Pal is now the basis for the rest of our planning. We are delighted that we can now get to work on next season together.”
Dardai, who divides his time between coaching Hertha and coaching the Hungary national team, oversaw 15 Bundesliga matches, winning four and drawing five.
The 17 points he obtained were enough to keep Hertha in the top flight of German football, although only goal difference kept them ahead of Hamburg, who went into the relegation play-off.
“I’m very happy about this agreement and the great belief that this club is showing in me,” Dardai said the club’s offical website.
“I always said that leading the first team here was not just a very exciting challenge, but also something that is close to my heart and now I want to fulfil it with absolute enthusiasm.
“Now is the time to get to work, and there is a lot to do. Everybody knows this is a dream come true for me.
“Together with the team, the club and our fantastic fans, we are going to have a great season – I’m totally convinced about it.”
Dardai has been on Hertha’s books since 1997, making 297 appearances as a player before starting his coaching career with the youth teams, until the call came last February to take charge of first-team affairs.