Hamilton's new deal runs until 2012

The deal for Hamilton, 23, who enjoyed a stunning debut year in Formula One last year, runs through until 2012.

Hamilton was pipped to the F1 title in the last race of a season that was marred by his frosty relationship with former team-mate Fernando Alonso.

The British driver led the drivers' championship for much of the season before ultimately finishing second to Ferrari's Kimi Raikkonen.

It's clear improved financial terms were fully deserved McLaren chairman Ron Dennis

His debut campaign was also soured by the £50m fine and loss of all constructors' points that McLaren incurred over the Ferrari "spy row".

Hamilton has a long association with McLaren and predicted the team would be very competitive over the next few years.

"I have been connected to McLaren and Mercedes-Benz since 1998 and feel that I could easily drive for this team for the whole of my Formula One career," said Hamilton.

"I'm with the right team to compete for race wins and both the drivers' and constructors' world championships in the future."

He added: "We will have a lot of challenges ahead, but I am 100% positive I am with the people to take them on.

"The first of those challenges is the 2008 season. We have 57 days to go until the Australian Grand Prix, and we are motivated to make the most of this time and arrive in Melbourne with a competitive car."

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Hamilton will become one of Britain's highest-paid sportsmen, his new contract reportedly worth around £10m per year, or £200,000 per week, dwarfing the country's Premier League football stars.

Although McLaren have not released any financial details, team boss Ron Dennis said Hamilton's astonishing F1 debut deserved to be rewarded financially.

"It's clear improved financial terms were fully deserved and this formed part of the friendly negotiations with Lewis' manager, Anthony (his father).

"This announcement will take the length of our relationship with Lewis to a total of 15 years, which we believe is among the longest running associations between a sportsman and a team in the history of sport, particularly motorsport.

"This is a great achievement for everyone involved, including Anthony.

"Lewis is an exceptional human being, on both a personal and professional level, and will continue to be a credit to this team."