The Spaniard was appointed Magpies boss on March 11, being presented with 10 games to keep the Tyneside club in the top flight.
With three wins and four draws he failed in his task, although it has been suggested since relegation that Benitez was keen to remain in charge.
The Magpies are set to play next year in the Championship, and it should be considered a real coup to have a manager of the 56-year-old’s pedigree in charge.
He is a Champions League and twice UEFA Cup/Europa League winning boss, with experience managing some of Europe’s biggest clubs in the last decade, and the Spaniard will now be preparing for a campaign in the second flight.
Speaking following the confirmation of the news, Benitez told the offical Newcastle website: “I am extremely pleased to be staying at Newcastle United.
“The love I could feel from the fans was a big influence for me in my decision to stay, as was my relationship with Lee Charnley and all the staff.
“This is a huge club and I wanted to be part of the great future I can see for Newcastle United.”