Pedersen was due to be out of contract next summer but the Wanderers moved quickly to secure the signature of the Danish international following his excellent start to the season which has seen him hit six goals in all competitions.
The 29-year old did fear for his Trotters future earlier this year but a combination of hard work and determination have reaped the rewards for the player who was signed from Silkeborg in July 2001.
Wanderers boss Sam Allardyce will be absolutely delighted to have secured the futures of both Pedersen and team mate Kevin Nolan.