Sydney FC had been desperate to keep the Italian legend, who had reportedly fielded offers from several clubs around the world.
Their wish has been granted, with the 38-year-old marquee man - scorer of 11 goals this A-League season - happy to remain at the Sky Blues.
"I am very happy to be staying at Sydney FC for another season," the Juventus legend said via statement.
"I chose Sydney FC at the beginning of this season because I wanted to show my love of football in another country and I have enjoyed the challenge and my time at Sydney FC and in Australia.
"I have always said I want to continue that for next season but first we must work hard for success on the field for the rest of this season."
Football Federation Australia chief David Gallop said Del Piero's decision to stay is a huge show of faith for Australian football and the A-League.
"If he'd gone just one season then people may have questioned how he felt about the A-League," Gallop said.
"This is very much him saying he had a great experience and he wants to have it again.
"That's great for football in Australia and the A-League and it's exciting to have him signing for a second season."
The decision to stay and activate the second year of his €1.5 million-a-season deal was met with delight by Sydney FC Chairman Scott Barlow.
"I am delighted to announce that Alessandro Del Piero will continue to be a Sydney FC player for the 2013-14 season," said Barlow.
"Alessandro's arrival at Sydney FC has been a wonderful success for Sydney FC and the A-League both domestically and internationally.
"His performances on the field have been tremendous, highlighted by him becoming the leading goalscorer for Sydney FC in a single season, but off the field he has also delivered unprecedented interest and profile for Sydney FC across all levels of the club.
"We look forward to working together with Alessandro to increase the profile of Sydney FC and football in Australia as we strive for success on the pitch for the remainder of this season and next."