The team's number two driver is set to continue his successful partnership with Lewis Hamiton, who is yet to agree new terms.
- Lewis Hamilton says 'survival instincts' helped him win thrilling British GP after tyre failure
- Lewis Hamilton wins his seventh British Grand Prix at Silverstone despite final-lap puncture
Bottas said: “I’m very happy to stay with Mercedes in 2021 and build on the success we’ve enjoyed together already.
The past few years have been all about continuous improvement. I’m confident that today I’m the strongest I’ve ever been, but I can always raise the bar.
"We're in the middle of a shortened season and I want to give my absolute best in every race. The puncture last weekend was a blow in my fight with Lewis, but I'm determined to come back strong this weekend on the same track."
"I'm confident that we have the strongest driver pairing in F1 today and signing Valtteri is an important first step in retaining this strength for the future," said team boss Toto Wolff in a statement ahead of the 70th Anniversary Grand Prix.
"Valtteri is a hard-working, straightforward guy who has a good relationship with the entire team including his team-mate, which is not a given when both drivers are fighting for the championship."
Hamilton is leading Bottas by 30 points after four races and is going for his fourth successive victory on Sunday when Silverstone hosts a grand prix for the second weekend in a row.
Bottas, overall runner-up in 2019, won last month's delayed season-opener in Austria. The Finn has won eight races with Mercedes since joining from Williams in 2017.
'I could hear him catching me' - Lewis Hamilton analyses dramatic British GP win