The former Hibs midfielder has been sidelined since last year after suffering cruciate ligament damage in a 3-0 win over Livingston.
Fyvie, who was part of the Hibs team that won the Scottish Cup in May 2016 and promotion the following year, signed a one-year deal with United last summer.
He had rejected the offer of a new contract at Easter Road, before having a change of heart and accepting the club’s proposal.
However, he was informed that the deal was no longer on the table due to the length of time he had taken to decide his future.
Fyvie then reunited with former Hibs colleagues James Keatings and Sam Stanton at Tannadice.
The 25-year-old scored three goals in 17 appearances for the Terrors before injury cut short his season in December.
Fyvie said: “I am delighted to continue my career here at United. I was enjoying my football last season, and the club has been excellent during my rehab.
“As I continue towards full fitness, I cannot wait to get back out playing for United.”
Fyvie had been a target for Ross County, but United boss Csaba Laszlo has managed to convince Fyvie his future lies in the City of Discovery.
Laszlo added: “Fraser’s performances and professionalism were clear to me when I became manager, and he is an important player for us.
“Him signing is excellent news as we build our squad ahead of the 2018/19 season.”