The former West Brom and Reading boss led Killie to a fifth-placed finish last season after being appointed in October when the Ayrshire club were bottom of the Ladbrokes Premiership.
Clarke’s initial contract had another two years left to run but the club have improved his terms, while assistant Alex Dyer has also been handed an improved deal.
Clarke told the club’s website: “The club approached me at the end of last season and I have a good relationship with the people above me. I think the relationship is strong.
“I was very grateful and pleased that they came to me and offered me a new, improved contract. It tells you that you’ve done a good job and it shows they have a little bit of faith in you.
“It is easy to sign the contract and easy to take the rewards but the hard bit is that I need to repay that faith by doing more good work for the club and hopefully we can do that this season.
“I’m enjoying the job and I enjoy going to my work day in, day out and when you get that job satisfaction it is great.”
Director Billy Bowie added: “The board is delighted that the club has secured the services of both Steve and Alex on new deals. There’s a real feeling of unity at the club as we look forward to the new season.”