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The 34-year-old former Chelsea and Arsenal winger scored five times in 27 Premier League appearances for the Cottagers last season.
He had reached the end of his contract and visited the Nottingham Forest training ground last week. But he said he is staying at Fulham.
"Happy to sign one more year with Fulham," he told the club's website. "Happy to continue the work that I did last season with all my teammates and the whole club. I think it's a club that can do even better this season."
Club owner, Tony Khan added: “I'm thrilled that Willian will return to Fulham for at least one more season! He was a very important addition last summer and was a significant contributor during one of the most successful Premier League campaigns our club has ever had".
