Parkinson, who made his England debut in the third international T20 against New Zealand, has signed a one-year extension to remain at Emirates Old Trafford until at least the end of the 2022 season.
The 23-year-old was selected for England’s latest tour after cementing his status as one of the country’s leading spin bowlers.
Parkinson said: “There is no other place I want to play cricket. Emirates Old Trafford is home to me, so it was an easy choice to remain here for at least another three years.
“Playing for this club has been a dream come true. I could not be happier to continue to represent the Red Rose and hopefully challenge for trophies in all three formats.
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“I know the club are ambitious and I see myself as part of that too.
“From the players to the backroom staff and the facilities, I honestly believe this is one of the best places in the world to play cricket and I believe I can only improve while I am here.”
Parkinson finished as the third-highest wicket-taker in this year’s Vitality Blast, taking 21 wickets at an average of just 14.61 in addition to 25 wickets in 2018.
He also finished as the leading wicket-taker in 2018’s Royal London One-Day Cup and added 12 more this season as Lancashire reached the semi-final stage.
In first-class cricket, the leg-spinner has amassed 62 wickets in 20 matches, including career-best match figures of 10/165 in the Specsavers County Championship win over Sussex this summer.
He will hope for a Test debut in the two-match series which follows the T20 leg of the New Zealand tour.
Lancashire’s director of cricket, Paul Allott, added: “Matt is a fantastic player and will only improve over the coming years, so we are delighted he has chosen to further commit his future to us.
“He has shown a desire to work extremely hard on his game and it has resulted in deserved international recognition this year.
“Not only is he a fine player, he is an excellent character and the type of person we want in the home changing room at Emirates Old Trafford. We are excited to see him continue his development at Lancashire Cricket.”