The school said Monday that Kelly is guaranteed $1.475 million to coach the Bearcats through the 2013 season. He had been signed through 2012.
The school said there are also performance-based incentives for Kelly and that the new deal also raises pay for his assistant coaches.
Kelly signed a five-year contract worth $6.3 million in December 2007 following his first full season at Cincinnati. The new deal must be approved by the school's board of trustees.
Kelly last season led the Bearcats to a Big East title and an Orange Bowl appearance.