The 29-year-old Frenchman's new deal runs until 2021.
According to Spanish reports, his salary has risen to over €7.5 million a year while he now sports a release clause of €1 billion.
Benzema has won 14 trophies with Los Blancos since joining them in 2009 for €35 million from Lyon.
Isco, Marcelo and Dani Carvajal also recently penned fresh terms with the European champions.