The 31-year-old joined the Tigers from Birmingham three years ago and recently surpassed 100 appearances for the Championship promotion-chasers.
Davies, who also counts West Brom and Aston Villa amongst his former clubs, has played a key role for Hull since his arrival and captained the side in their first FA Cup final appearance against Arsenal in 2014.
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A statement on the club's official website read: "He continues to be a key figure as (manager Steve) Bruce's side bids to win promotion back to the Premier League this season and the club is delighted to retain Davies' services for the foreseeable future."
Davies tweeted: "Glad to finally get my new deal signed. Let's hope these next 2 years will be spent in the Premier League. #HCAFC."
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