The exciting Barca prospect's new deal includes the option for another two years through to 2013.
In addition, his buyout clause is set at €10 million, but will rise to €30 million if he stays until 2013.
"I'm very happy for the confidence they have shown in me. I hope to do even greater things in the B team and consolidate myself in the first team.
"Now I am closer to my dream: to become a great footballer," said Thiago.