Sainz will therefore drive for the team for a third consecutive Formula One racing campaign, having made his debut with Toro Rosso in 2015.
This season Sainz has scored 18 points, including a strong sixth place in Spain, and such had led to speculation he might be a target for other teams, but Red Bull confirmed on Wednesday in Austria that they have extended their deal with the 21-year-old.
"We took up his option earlier this week, so he is committed to Red Bull for an extra 12 months," Red Bull team principal Christian Horner explained.
"As with all the drivers they are contracted to Red Bull Racing, and then we have the ability to place them where we want. He is currently at Toro Rosso, which is where he will be next year.
"We had until the end of the year to take up the option, and we chose to do it early to put his mind at rest."
Horner suggested that Sainz's current team mate Daniil Kvyat will also be retained next year, adding: "I'd be surprised [if Sainz did have a new team mate]. I think Dany [Kvyat] is continuing his development, you can see he is finding his feet now, and there is not an obvious candidate knocking on the door at the moment that would warrant that seat.
"It's great for us to have a driver development programme that is producing talent like Ricciardo, like Verstappen, Carlos as well, and of course Dany Kvyat.
"We are not short of talent in our stable. It's a luxury issue really. We are set in RBR for the next two-and-a-half years."
Sainz out-qualified current Red Bull driver Max Verstappen 10-8 during their season together in 2015, but finished three spots and 31 points behind his then team mate. He and Verstappen proved closely matched again in the early part of this season, while he has out-scored Kvyat in three of the four races they have been partners - the only exception being in Baku, where both retired with technical issues.