Garcia took Belgium to this month's World Cup quarter-finals, where they lost to eventual winners Spain, but his future had been in doubt after a largely unconvincing tournament.
The 62-year-old Frenchman’s deal runs out at the end of the month.
“Rudi Garcia has unquestionably played a key role in restoring the Belgian Red Devils,” said a statement from the association's sports director Vincent Mannaert.
“He was appointed national coach in a challenging sporting and financial context. Thanks in particular to his commitment and experience, team cohesion was restored and a strong result was achieved at the most recent World Cup,” he added.
“On behalf of the federation, I would like to warmly thank Rudi and his assistants for the past 18 months.
“Together with my team, I am currently preparing for a new cycle, including the appointment of a new national coach.”