The 57-year-old Portuguese replaced Gary O'Neil in December last year on an initial 18-month deal. He guided Wolves away from relegation danger last season with a run of six straight wins to secure a 16th-place finish.
"Vitor has made a very positive impact during his time at Wolves. He's brought clarity, energy and a team spirit that gives us a foundation to be successful," Wolves Chairman Jeff Shi said in a statement late on Thursday.
"Now is a time for stability. Vitor needs time to work with the squad, to build a chemistry with new players, and we will do everything to support him and his staff."
Wolves host Leeds United in the league on Saturday.