The 27-year-old club captain has scored 35 league goals since joining from Getafe two seasons ago. He just missed out on a place in the Euro 2012 squad.
"His contribution has been fantastic, everyone has seen it," said Valencia president Manuel Llorente in a statement on Saturday.
"His winning character makes him a key figure for the team and a reference for the fans."
Soldado's original contract was due to run out in 2014.
Valencia finished third in La Liga, behind Real Madrid and Barcelona, last month to qualify for the Champions League group stages next season.