The winger had expressed in June his hope of playing for a top-four club in the Premier League, with his previous deal set to expire at the end of next season, but has ended talk of a summer return to the top flight by extending his stay at the Madejski Stadium until 2016.
He told the club's official website: "I'm delighted to sign a new contract and it's a fantastic feeling to commit my future to Reading.
|9/1||Reading are 9/1 with William Hill to win the Championship
"The manager has shown a lot of faith in me and the style of football he is getting the boys to play is going to be exciting but effective as well. The only direction the club is looking to go is upwards and I can't wait for the season to start now."
Reading's director of football, Nick Hammond, was delighted to have tied down one of last season's best performers.
"I'm very pleased to have secured Hal's signing. He is a player who is improving year on year - to the extent that he scored seven goals in the toughest league in the world last season and also became a mainstay of Welsh national squad," he enthused.
"He can play on both the right or the left and, going forward, we also believe he can develop into a very effective central striker. The challenge is now there for him to become a regular starter in this team and a big player for us in the Championship this season."