The 22-year-old openside flanker will remain at Sharks until at least 2008 after shunning interest from several other clubs.
"Magnus has been one of our stand-out performers this season, winning a string of man-of-the-match awards for us," said Sharks rugby director Philippe Saint-Andre.
"In my opinion, he is the best English number seven in the league right now, and he will get better and better over the next few years.
"He is a key man in our assault on silverware this season and he will be one of the cornerstones of our pack over the next two years.
"Alongside Andy Titterrell, Andrew Sheridan, Chris Jones and Dean Schofield he is a member of a set of young English forwards who have grown up together and who can only get better with age and experience."
Lund added: "I have had a number of clubs interested, but I was only ever really interested in staying at Sale Sharks. I have been here since I was a teenager and the club deserve loyalty from me."