The team announced the deal Wednesday.
Kelley gets a raise from $610,000 last season, when the right-handed reliever went 2-4 with a 3.25 ERA in 47 appearances. He had asked for $1.2 million this year and was offered $750,000 by the Mariners.
The 28-year-old Kelley is 10-9 with a 3.52 ERA in four major league seasons, all with Seattle. He can earn an additional $41,250 each for 60, 90, 120 and 150 days on the active roster, not including time on the disabled list.
The Mariners have agreed to contracts with all their players who were eligible for arbitration.