The Chargers made the announcement late Friday. The deal is worth $45 million with $24.156 million in total guarantees, sources told ESPN's Adam Caplan.
The deal is expected to be finalized and signed next week. Allen, the NFL's rookie of the year in 2013, has 215 receptions for 2,554 yards and 16 touchdowns in his first three NFL seasons.
Allen had 67 catches for 725 yards and four touchdown catches last season through eight games and was well on his way to his second 1,000-yard season, but he suffered a kidney laceration in the eighth game and missed the rest of the season.
The extension also means that both Allen and Chargers quarterback Philip Rivers will be under contract through at least the 2019 season.