The club announced the deal on Wednesday, saying in a release that the new contract carries an annual average value of US$1.05 million.
Demko, 23, appeared in nine NHL games this season and posted a 4-3-1 record with a .913 save percentage and a 2.81 goals-against average.
Vancouver picked the six-foot-four, 192-pound netminder 36th overall in the second round of the 2014 draft.
Demko has spent much of his professional career with the Canucks’ American Hockey League affiliate, the Utica Comets, where he became the team’s all-time leader in wins and earned AHL all-star honours last year.
This season, he tallied a 8-5-1 record with a .911 saver percentage and 2.58 goals-against average in 16 games with the Comets.
Demko became the first goalie in franchise history to win his first two NHL games on Jan. 18 when he made 36 saves in a 4-3 win over the Buffalo Sabres.