Negotiations had stalled before Real submitted an improved proposal on Wednesday, and Vinicius is believed to have welcomed the revised conditions.
The winger moved to Real from Brazilian club Flamengo in 2018 and agreed to his previous contract renewal three years ago.
Real had spent the past 18 months discussing another agreement with his representatives. He has now committed his future to the team he once described as his “dream” club.
Following his World Cup campaign with Brazil, he reported back on Monday for his first pre-season practice and a medical evaluation.
Vinicius has registered 128 goals in 375 matches for Real in all competitions, as well as scoring 13 times in 54 international appearances for Brazil.
During his spell at the club, he has contributed to two Champions League triumphs, three La Liga titles and one Copa del Rey victory.
Arsenal were reportedly prepared to step up their pursuit of the Brazilian had he turned down Real’s proposal. The Premier League champions will now have to consider other options in their search for a left-sided attacker.
Vinicius’ renewal was confirmed on the same day Real completed the acquisition of Ivory Coast winger Yan Diomande from RB Leipzig in a deal potentially worth £120m (140m euros).
Diomande becomes Real’s sixth arrival of the summer under new head coach Jose Mourinho, following Bernardo Silva, Ibrahima Konate, Denzel Dumfries, Marc Cucurella and Carlos Espi.
Real are also pursuing Manchester City and Spain midfielder Rodri, although they now face competition for his signature from long-standing rivals Barcelona.
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