The 25 year old midfielder, who has two England caps, played every minute of the club's 2019-20 Premier League campaign.
"It's a club that's very close to my heart," Ward-Prowse said.
"I really feel that it's an exciting period for us.
"I think we've regained our identity as a team and I think we're heading in the right direction towards where we believe we can go as a club."
Boss Ralph Hasenhuttl says Ward-Prowse, who has played 278 times in all competitions for the club, scoring 24 goals, is "a player who shows everything that the club is about".
"He was not playing so much when I arrived, but he has listened and worked on every aspect of his game, and that is why he has reached the level he is now at and he is respected by everyone here," the Austrian added.