The veteran boss, 62, had refused to reveal whether he would remain at the helm to defend his crown after guiding the Scottish champions to a second successive Clydesdale Bank Premier League title.

However, uncertainty over his future at the Glasgow giants came to an end tonight when the club confirmed he had put pen to paper on a one-year contract.

And the man who played a pivotal role in Rangers' 'Nine in a Row' campaign in the 1990s, before his return for what has been a successful second spell so far, is determined to go out on a high when he retires from the game in 12 months.

Smith said: "I have given this decision a great deal of thought.

"The next season holds many challenges for everyone at the club and I would hope that with the backing of everyone - supporters, management and staff - we can pull together as a club and continue to achieve at least the levels of success we have enjoyed over the last few seasons.

"We have big challenges ahead, on and off the field, but we are all Rangers men at heart and are looking forward to going for our third league title in a row and playing in the Champions League."

Smith will step aside at the end of the forthcoming campaign for his assistant Ally McCoist to take over the hotseat after McCoist and first-team coach Kenny McDowall both signed two-year deals.

Smith added: "I am wholly committed to managing the club next season and when it comes to the end of next season I firmly believe that Ally and Kenny would do a great job and I am glad everybody at the club shares that view."

McCoist admits it will be "a privilege and an honour" to replace Smith when the veteran boss retires.

Former striker McCoist has served a five-year apprenticeship under Smith, firstly with the Scotland national team then back at Ibrox as his number two for Smith's second spell in charge.

McCoist said: "We're thrilled, absolutely thrilled to get it sorted. I think it was fairly common knowledge we didn't want to go anywhere at all.

"This place is our home and thankfully we've had a reasonable amount of success in the last few years.

"For that reason, we were really keen to stay and we are delighted with the way it has all worked out.

"It will be a privilege and an honour to take over from Walter next year and that is a challenge I shall certainly relish."

Smith has been forced to work under financial restrictions amid the ongoing uncertainty which hangs over the club, as the search for a new owner continues.

His inability to purchase a new player since August 2008 has been well documented.

But club chiefs have revealed that Champions League money will be re-invested in the playing squad following positive talks with Lloyds Banking Group, the club's bankers.

Chief executive Martin Bain said: "We are all delighted that Walter, Ally and Kenny are staying on and we are pleased to be able to inform fans more fully about the club's position.

"We have been engaged in direct and constructive discussions with the bank about how the club can operate in the foreseeable future, given the improved financial position since last season.

"We will, of course, continue to look for new investment in Rangers but, in the interim, there is a plan in place for the club to operate on a stable basis.

"The club recognises that Lloyds Banking Group is looking for structured debt reduction at the club.

"Equally, the bank recognises that the club needs to be managed at a level where it is in a position to deliver success on the field and meet supporters' expectations.

"In broad terms, we will invest some Champions League revenue and general profit from this year in the playing squad.

"We will be able to maintain our wage levels as they are and, if any players decide to leave, we will be re-investing proceeds back in the squad.

"We believe the outcome of our recent positive discussions with the bank gives us a real platform for operational stability at the club and we thank Lloyds for their support.

"We have a clear business plan in place and will continue to maximise efficiencies and endeavour to increase our non-playing income.

"I would also like to thank our supporters who have been absolutely tremendous throughout this period of uncertainty.

"There is no doubt their efforts helped the team achieve its success over the last few seasons and we would hope this fantastic support will continue.

"At no time has the supporters' backing been more crucial than it is at present and it is never taken for granted. Everyone at the club has to continue to earn their support every day."