Stadler, who has run Audi since 2007, has faced criticism for his handling of the group's emissions cheating scandal. The 54-year-old, along with fellow executives, is expected to face questions from shareholders on Thursday about a March 15 raid by German prosecutors looking into the scandal.
The supervisory board vote to extend Stadler's contract, which is due to expire at the end of this year, was unanimous, Audi said.
Two sources close to the Volkswagen group had earlier told Reuters that Audi's supervisory board would extend the CEO's contract through to the end of 2022 at a meeting on Wednesday.
"We employees attach very clear conditions to this contract extension," Peter Mosch, chairman of Audi's works council and a member of the presiding committee of the supervisory board, said in a statement.
"Rupert Stadler must safeguard employment at our sites in Germany for the long term, ensure good utilisation of our plants' capacities and systematically promote technologies that guarantee a successful future for our company."
Audi admitted in November 2015 that its 3.0 litre V6 diesel engines were fitted with an auxiliary control device deemed illegal in the United States that allowed vehicles to evade U.S. emissions limits.
Volkswagen has agreed to spend up to $25 billion in the United States to address claims from owners, environmental regulators, states and dealers and offered to buy back about 500,000 polluting U.S. vehicles.
Audi said on Wednesday it was upgrading and expanding its area of responsibility for integrity, with the chief compliance officer in future reporting directly to the finance chief.
(Writing by Andreas Cremer and Georgina Prodhan; Editing by Alexander Smith and Mark Potter)
By Andreas Cremer