The deal guarantees the 36-year-old Saito $1 million with another possible $300,000 in incentive bonuses based on games finished.
Los Angeles could have renewed his salary for as low as $400,000.
"It's a unique situation, and you can tell by the salary that we treated it that way," said Dodgers vice president Kim Ng, who handled negotiations for the club.
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"He was a pretty integral part of the club, especially in the second half, and he was rewarded for that."
A four-times All-Star in Japan, Saito was 6-2 with a 2.07 ERA last season. He blew only two save opportunities and struck out 107 batters in 78 1/3 innings.
Saito's signing was key because the future of the Dodgers' regular closer, free agent Eric Gagne, is in doubt after elbow and back operations.
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