The Scotland international is the longest-serving player in the Baggies' squad after joining in 2007 from Middlesbrough.
He has since become an integral part of the first-team making over 150 appearances in his five years at the Hawthorns.
West Brom boss Steve Clarke believes the new deal is testament to the 26-year-old’s improvement during his time at the club and the hard work he has put in.
Clarke told the club’s official website: "After strengthening the squad during the transfer window, it’s equally important to hold onto your best players and I’m delighted James has signed a new deal.
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"The new contract is fair reward for James’ hard work and efforts.
"He’s been here a number of years now and has always been one of the key players.
"This is a good message to send to the rest of the squad, that if you do well and keep improving you will be rewarded.
"It’s also a big coup for the club because I’m sure that if James was on the market, there’d be a few clubs interested in him."