The veteran forward's existing deal was due to expire this summer and there were doubts as to whether Pizarro would stay put.
However, the 35-year-old has now decided to sign a one-year renewal with the Bundesliga champions, which could spell the end of Mario Mandzukic's time at Bayern, with Robert Lewandowski set to join from Borussia Dortmund.
"Claudio has shown this season how important he still is to the team. We are very pleased that we can count on him for another season," Bayern CEO Karl-Heinz Rummenigge commented on the striker's new deal.
Pizarro re-joined Bayern from Werder Bremen in the summer of 2012 after previously playing for the Allianz Arena side between 2001 and 2007.
The striker netted 10 goals in 17 Bundesliga appearances this term and he is delighted to have inked a new deal with the German giants.
"I am very proud that I will play for Bayern again next season. There is no better team in the world for me.
"We have an amazing squad and will be fighting for silverware again next term."