The firm has previously been heavily criticised over reliability and punctuality, with calls for it to lose the franchise.
Avanti cut services and ticket sales last summer amid staffing problems. The Department of Transport said its contract would now run until 15 October.
Avanti’s current contract was due to finish at the end of this month after it was given a temporary six-month extension last October and told to urgently improve.
The operator, which runs trains to Liverpool, Manchester, Birmingham, north Wales, Glasgow and Edinburgh, slashed its timetable last summer after drivers stopped doing overtime and passengers suffered widespread disruption.
The government had warned the firm that its contract could have been withdrawn.
Transport Secretary Mark Harper said: “The routes Avanti West Coast run are absolutely vital, and I fully understand the frustrations passengers felt at the completely unacceptable services seen last autumn.
“Following our intervention, Rail Minister Huw Merriman and I have worked closely with local leaders to put a robust plan in place, which I’m glad to see is working.”
Avanti’s parent company First Group said the current arrangements had been extended “under broadly the same terms and conditions”.
Chief executive Graham Sutherland said: “We are working closely with government and our partners across the industry to deliver a successful railway for our customers and communities.
“Performance at Avanti is steadily improving and, since the introduction of the new timetable in mid-December, the number of services has increased by more than 40% compared to last summer, with more seats and better frequencies.”
It introduced a new fuller timetable in December. Earlier this month the transport secretary said Avanti had been delivering a better service on weekdays.
More than 5% of Avanti’s services were cancelled in the four weeks to 3 March, down from 10.5% in the four weeks to 4 February and 18.9% in the four weeks to 7 January.
First Group also said a new managing director for Avanti had also been appointed.