The Frenchman had been out of contract in June, but signed a short-term extension to cover the end of the restarted Premier League season.
"The more I've seen of him, the more impressed I've been," said Leicester manager Brendan Rodgers.
"To have someone with his experience, quality and maturity is a big boost for us, especially with European football next season."
Mendy has made 29 appearances for the Foxes in all competitions.
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