Partey, 24, has started 19 of his 24 league appearances for Atletico this season. His current deal was due to expire in June 2020.
A Ghana international, Partey arrived at Atletico in 2011, made his first-team debut in November 2015 and has scored nine goals in 82 games.
“I’m thrilled to renew my contract with the club of my life,” Partey told the club’s website. “I hope to continue here for many more years and help the club.
“I always try to work hard. It’s not easy to make the first team and for me, it gives me pride to continue to work for this club.”
Partey made 10 starts in all competitions for Atletico last season but has seen that number almost triple with three months still to play in the campaign.
“I see myself well [and] happy because I’m playing a lot more minutes,” Partey said. “The team is strong, scoring many goals in the last few games and we are going to keep fighting to remain high up in the standings.”
Atletico are second in La Liga and have taken 25 points in their last nine games heading into Sunday’s game at leaders Barcelona.