The deal, announced by Sydney FC Chairman Scott Barlow on Monday, will keep Arnold at the Sky Blues until the end of the Hyundai A-League 2018/19 Season.
It means no other Sky Blues boss will come close to the number of games Arnold will have coached at Sydney FC once the contract is complete.
Arnold, who joined the club in May 2014, has his team sitting on top of the Hyundai A-League ladder having also reached a maiden Westfield FFA Cup Final last month.
The 53-year old led the Sky Blues to their best ever AFC Champions League finish last season defeating Asian football powerhouses Guangzhou Evergrande and Pohang Steelers en-route to the last 16.
He also achieved a second placed finish and a Grand Final appearance with the Sky Blues in his first year in charge.
Sydney FC Chairman Scott Barlow says the extension is a sign the club is building for a successful future.
“I am delighted to announce that we have entered into a further two-year contract with Graham Arnold which will make him the longest serving Head Coach in the history of Sydney FC,” Barlow said.
“We believe Graham is the best coach in the country and absolutely the right man to continue to take us forward.
“We have had an outstanding start to the season and this announcement provides us with further stability and continuity as we build towards our goals for this season and beyond.
Arnold’s contract ties the former Socceroos coach to Sydney FC for five years, comfortably surpassing the three-year stint of former Head Coach Vitezslav Lavicka.
“Sydney is my home and Sydney FC is my club. I am very happy here and I couldn’t imagine coaching anywhere else right now,” said Arnold.
“I feel this club has a fantastic vision and a great foundation from which to build and win many trophies.
“We have a fabulous culture among the players and staff and our Academy and youth set up is second to none.
“Things are going well for us so far this season and I have an excellent bunch of players with whom to work with, which bodes very well for the future.”
The current Sky Blues Head Coach also has the highest winning percentage of any Sydney FC Head Coach, since Pierre Littbarski in the inaugural season, who stayed for just one season.