The new mandate, for a three-year term, had been expected and marks a vote of confidence in Governor Raghuram Rajan's efforts to overhaul how the RBI sets interest rates.
Mr Patel has run the monetary policy department since 2013 as one of the RBI's four deputy governors.
His reappointment also raises investors' hopes that Mr Rajan will also be offered an extension of his own when his tenure ends in September.
Mr Patel's three-year tenure was due to end next week. He will be reappointed with effect from January 11, the RBI said in a statement late on Friday.
Considered a close lieutenant to Mr Rajan, Mr Patel headed the committee that introduced landmark changes including a switch to inflation targeting and adopting consumer prices as the new barometer rather than wholesale prices.
The changes are considered among the most significant since India opened its economy in 1991.
Mr Rajan, an academic and former chief economist at the International Monetary Fund (IMF), is considered one of the most influential governors in the RBI's 81-year old history, building a significant profile abroad as a voice for emerging markets.
He was appointed by the previous UPA government, but has established a good working relationship with Prime Minister Narendra Modi's administration, despite occasional disagreements over policy and the shape of some reforms.
Although the changes to monetary policy have been mostly well received, the RBI has come under criticism from market participants over its management of money markets, a division that is also part of Mr Patel's remit.
Most prominently, traders and bankers have complained the RBI has kept cash conditions in the financial system too tight, and not injected enough funds via bond purchases.
Traders also believe the RBI's introduction of short-term cash-for-loans called term repos has been ineffective as banks uncertain of the liquidity outlook avoid committing by borrowing for more than one day.
"Now that he has got reappointed, it means the RBI will continue to be inefficient in the management of liquidity and there is no one to correct this," said a dealer at a foreign bank.