O'Kelly, the most-capped Irish player in history, hopes the new deal will allow him to focus solely on the RBS 6 Nations which starts this weekend.
"The next couple of seasons with both Leinster and Ireland are going to be very important," he said.
"With the new coaching set up in Leinster and the 2007 World Cup fast approaching, I think these will be very exciting times for the province and the Ireland team.
"I am happy to have agreed my new contract, allowing me to concentrate on the upcoming Six Nations and the visit of Italy this weekend."
O'Kelly overhauled Mike Gibson's previous record of 69 caps during last year's RBS 6 Nations and can boast 75 appearances since his 1997 debut against New Zealand.
Leinster chief executive Mick Dawson added: 'I am delighted that Malcolm has committed his immediate future to Leinster and Irish rugby.
"Malcolm has been a stalwart since making his Leinster debut in 1995 and is internationally recognised as one of world rugby's finest second rows. He has been a true leader both on and off the field and his commitment, followed by that of Brian O'Driscoll recently, is another massive boost for Leinster Rugby.'