The Leoes did not reveal any details regarding the improved deal, but according to reports, the Portugal international will become the highest paid player at the club, earning €4 million per season.
However, his contract duration -- which runs to June 2023 -- and his release clause of €100m will reportedly remain the same.
A target of Real Madrid and Manchester United in the summer, Fernandes told the club's website: "For me this an honour and a reward for my work. It means I'm doing things well.
"I'm trying to do the best for me and for the club. I'm very happy to represent this club on and off the pitch.
"For me it will always be a privilege to wear the Sporting jersey. The fan can expect more, and better. I promise to show the same dedication and commitment to bring more glorious moments like the one we had last season."
Fernandes scored 31 goals in 50 appearances for Sporting in all competitions last season, including 20 in the league, to help Sporting win the Portuguese Cup and the Portuguese League Cup.
Fernandes was this week named on the 50-man shortlist for the 2019 UEFA Team of the Year, and was ranked the 10th-best attacking midfielder in world football in ESPN's FC 100.
"It's an honour to be among the best," the 25-year-old midfielder said of his UEFA nomination. "It's gratifying, because we know how difficult it is, especially when playing in the Portuguese league where there is less visibility.
A regular in Portugal's squad, Fernandes won the UEFA Nations League in the summer, and has scored five goals and set up five more in 10 league appearances for Sporting this season.