The 41-year-old, who left second-division Mainz at the end of last season, was appointed Dortmund coach in May.

Klopp's previous deal at the Westfalenstadion was due to run out in June 2010, but he has agreed to stay for an additional two years.

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Dortmund general manager Hans-Joachim Watzke told the club's official website, www.bvb.de: "Already in the first few months of working together it is clear that this coach suits us excellently."

Klopp left Mainz after failing to guide them to promotion to the Bundesliga, and replaced Thomas Doll as Dortmund coach.

And the 1997 Champions League winners have fared better under Klopp, whose side would be challenging for a European place had they managed to convert some of their 13 draws into wins. They have lost just four of their 24 league games so far this term.

Klopp feels his partnership with Watzke is proving a success.

He said: "It is working 100%. We are working very constructively together. BVB are a really big club and have a huge potential that we want to realise for a long time."

Sporting director Michael Zorc believes Klopp is the man to bring the glory days back to Dortmund.

"Jurgen Klopp has already achieved some things, but we are standing only at the start of our development," he said.

"Time and patience will definitely pay off with our young team."

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Watzke also revealed the club would begin talks over a contract extension with Zorc in the summer.