The Bulgarian moved to Stade Louis II on a short-term deal in January from Fulham and has done enough to earn a new contract at the Ligue 1 sides
The Bulgarian moved to the principality club in January on a short-term deal after leaving Fulham and scored six goals in his 11 Ligue 1 appearances.
And he has done enough to earn a new contract with the Ligue 1 runners-up and is looking forward to the challenge ahead.
"I feel at home here. It's going to be an interesting season," Berbatov told Monaco's official website.
Club vice-president Vadim Vasilyev is delighted to have secured the former Manchester United star's services for another year and believes the veteran showed what he was capable of this term.
"With Monaco, Dimitar showed all of his talent. He is a great player and we are very proud to have him for the next season."
Claudio Ranieri's side, who are assured of a second-placed finish in Ligue 1, round off their season by entertaining Bordeaux at 20:00GMT on Saturday.