"I'm very happy about this news," the Juventus and Italy legend told a press conference after agreeing to activate the second year of a reported US$2 million-a-season contract.
"For sure it's a great moment for me, for Sydney FC," he said, thanking the club for trusting him.
The 38-year-old Juventus legend said he would not carry on if he could not play at a high level.
"In my age, I want to be very honest. We have to see year by year."
Del Piero has already scored 11 goals in 18 matches, a record haul by a Sydney FC player in a single season and been a hit off the pitch too, helping to boost crowds, shirt sales and television ratings.
Sydney FC has fought back from the bottom of the league to fifth place and in play-off contention, largely thanks to Del Piero's goals.
"We have a good position but it's not enough, we have six games remaining but we have to push our energy to take a play-off," he said.
"We want to improve for the next year and do better and better every week," he added.
The team's charge for the finals gathered steam, with a 2-1 win over Adelaide United following the signing of Socceroos captain Lucas Neill on Saturday.
An early-season collapse was halted by the December arrival of former Australia coach Frank Farina, helping the two-time champions push for a play-off berth.