The contract is due to run until 2010. Hiddink will now stay in charge of the national side until at least after that year's World Cup in South Africa.
Hiddink was reported to have signed the contract at 9:00 p.m. Moscow time (18:00 GMT). His previous contract with the RFU was reported to be worth around $2.5 million a year.
The 61-year-old trainer has managed the Russia side since 2006. Under his control, the team beat England to second place in the Group E qualifiers for Euro 2008, earning a spot at this summer's tournament in Austria and Switzerland. Russia will face Spain, Greece and Sweden in their group.
No Russian side has managed to negotiate the group stage at a major competition since the collapse of the U.S.S.R, and Hiddink will be hoping that his young team will be able to achieve what others have failed to do.
Hiddink has often spoken of the enjoyment he takes in managing Russia, frequently saying that the side has "great potential."
The Dutch trainer has previously managed a host of sides, including the Netherlands, Australia, South Korea and Real Madrid.
