The new deal will keep the Scottish international at Albion until 2022.
The 28-year-old joined Albion in 2016 from QPR, and has gone on to score 14 goals for the club in 101 appearances.
Head coach Slaven Bilic revealed the news at his pre-match press conference this afternoon, saying: "Obviously it’s good news for the club and it shows that he’s happy here.
"The players want to put themselves in a good situation and he feels that good things are happening here, it’s a great place to be.
"We are delighted, we didn’t have to convince him much with our plans, and it’s always good to keep our major players.
"He’s played in every game, he’s not missing any sessions, so he’s a great pro, he’s in early, he looks after himself, he’s staying after training and all that."
Albion's other wingers are Kyle Edwards and Grady Diangana, who are 21, and Matheus Pereira, who is 23.
Bilic believes Phillips can be one of the club's experienced heads this season.
"The age on the pitch doesn’t matter, you want to be a good team, but it’s perfect if you have good young players," he said.
"They need older players when it’s not going smooth and well, that’s when those major players – senators – that’s why they are crucial and he’s one of them.
"He's a great asset on the pitch, he can change the game, not only with a cross but with his energy and he has those moments when the team really needs him.
"When you’re coming into a flat phase he makes a couple of moves and everybody’s up.
"Matty’s a Premier League player, he’s done it there, he’s a great age also. There’s nothing negative about this, it’s all positive, we can talk for ages about it.
"It’s all about competition. The season is long and they are pushing each other. We have a lot of games, and then also during the game we had situation now when you are changing the wingers.
"It’s the thing that they basically sprint, one v one, it’s the position that is really demanding, we need quality and quantity there."