The 25-year-old joined fellow youth-team graduate James Tomkins, who agreed new terms with the club back in January, in committing his future to the Hammers and ensuring the east London club has a core of local talent.
"It's a big signing for us," Allardyce said. "He is a lad who is born and bred West Ham and, as we continue in the Premier League, not many young ones have developed and we have Mark Noble. He is home-grown as is James Tomkins.
"Hopefully we will find one or two more as time goes on. We are really pleased that Mark has signed his contract."