The former Fiorentina coach took over at the Azzurri helm following the then-reigning world champions’ disastrous 2010 World Cup showing in South Africa.
Prandelli would go on to lead La Nazionale to the Euro 2012 final, third place at last summer’s Confederations Cup and qualification to the coming showpiece in Brazil in unbeaten style.
Despite the 56-year-old’s success on the bench, however, his status upon returning from South America had been unclear for some time due to an expiring contract and admission of a desire to return to club football.
The unresolved managerial situation at Tottenham Hotspur saw Prandelli linked with the top post at White Hart Lane for next season alongside Netherlands counterpart Louis van Gaal.
The Italian rubbished claims of an imminent arrival in north London last month - referring to rumours as ‘fantasy football’ - though until now his future had remained uncertain.
Reports on Monday suggested that Prandelli had been offered a new deal to guide the Azzurri on through Euro 2016 in France.
And the ex-Viola boss has confirmed the decision of the Italian FA (FIGC) to offer him a two-year contract renewal, citing his inclination to accept.
“I feel great satisfaction right now,” he told ANSA news agency.
“I’m proud that the FIGC has offered me a two-year renewal, regardless of the outcome of the World Cup.
“And for this reason I have given my full availability.”
Prandelli had initially been thought to be in demand of terms that would see him remain in charge of Italy through the 2018 World Cup in order to accept.
However, an official announcement of the two-year extension from the FIGC appears only a formality at this point, the agreement having been reached in principle.
Prandelli will reportedly put pen to paper on the new deal next week.