Rosberg, 29, has won three races so far this season - in Australia, Monaco and Austria - and leads team-mate Lewis Hamilton by just four points at the top of the standings.
The German joined Mercedes in 2010.
"I am very proud to drive the Formula One Silver Arrow of the modern era," Rosberg said. "As a German, the heritage of Mercedes-Benz is very special for me and I am proud to be able to represent the best car brand around the world.
"There has been big progress during the past year, building up our structure, management and capability for the future.
"We have an awesome team and I am confident that we have the right people in place at every level.
"I'm looking forwad to the next years together, when we will keep pushing to win even more races - and, hopefully, championships."
Toto Wolf, Head of Mercedes-Benz Motorsport, said of Rosberg: "His speed, commitment and focus have all helped to give clear direction and to drive the team forward. He is one of the very top drivers in Formula One."
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