Head coach Unai Emery said: "I'm very pleased Alex has signed a new contract with us".
Time is running out for Arsenal to get the deals done in order to finance a move for Vida before the transfer window closes on Thursday though and Wolves appear to have stolen a match in their quest to sign the defender, who played an integral role in Croatia's run to the World Cup final in Russian Federation earlier this summer.
But new manager Unai Emery considers the Nigeria global an important player in his plans.
"It's always been my childhood dream to represent Arsenal, from young", Iwobi told Arsenal media during his signing presentation.
Arsenal are also hoping to extend Aaron Ramsey's contract in August.
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Iwobi has been at the Arsenal academy since he was nine years old and already has 98 first-team appearances at the age of 22.
Speaking to Arsenal Player, Iwobi hailed the "amazing feeling" after signing the extension.
"The first kit that I had was Arsenal and long may I continue to represent them".
The Nigerian worldwide will now not be leaving the gunners any time soon and will be looking forward to working with the new Arsenal manager Unai Emery ahead of the upcoming seasons, Iwobi will be delighted that he has signed a new deal because there were reports that the gunners were open to selling him this summer transfer window.
However, despite winning the Treble at PSG last season, Dickinson still thinks there are question marks over Emery, who left the Parc des Princes at the end of the previous campaign having spent two years in the French capital.