General manager J.P. Ricciardi also got a vote of confidence, with team president Paul Godfrey confirming Ricciardi will be back in 2009. Ricciardi has two years remaining on his contract.
Godfrey, whose own status remains unclear, said he would announce his intentions "probably next week some time."
Toronto's president since 2001, Godfrey recently told team owner Rogers Communications that he felt Ricciardi deserved to return.
"I gave them my recommendation on J.P. and they absolutely agreed with it," Godfrey said.
Toronto has never reached the playoffs under Ricciardi, who was hired before the 2002 season.
"I know that this will be received with mixed emotions, not only in the media but with the fans as well, but I believe that J.P. is still the one to do the job as general manager of the Toronto Blue Jays," Godfrey said.
Ricciardi has drawn fire for concealing the nature of closer B.J. Ryan's elbow injury in 2007, and for negative comments about then-Cincinnati slugger Adam Dunn during a radio appearance in June, when he questioned Dunn's passion for baseball. Godfrey said those incidents played no part in deciding whether to bring Ricciardi back.
"He's a very passionate guy," Godfrey said. "He has slipped up a couple of times. He knows that. I don't even have to say anything to him, usually he comes in and says it to me. It's only because he cares and he really gets emotionally involved in the game. That's one of the flaws in his characters but, at the same time, I know what he passionately wants to do is win, and win for the Blue Jays."
Godfrey confirmed he has held "preliminary budget talks" with team ownership, saying Toronto's payroll in 2009 will be "appropriate," but "not significantly higher" than in 2008, when the opening-day payroll was just shy of $98 million.
Toronto beat New York 8-2 to improve to 49-36 since Gaston replaced John Gibbons on June 20. The Blue Jays are 84-75 overall, fourth in the AL East.
"It's something that, from day one, J.P. and I talked about," Gaston said. "We talked about coming back for one year but two years is great. Hopefully we can turn things around next year."
When Gaston was hired, Ricciardi said the two would sit down after the season to discuss Gaston's status for 2009. That changed in early August, when Ricciardi said Gaston would "definitely" be back.
Ricciardi said Gaston's biggest success has been improving Toronto's offense.
"Offensively we've really been the club that I thought we'd be, and he's had a big influence on that," Ricciardi said. "He may have simplified some things, the approach, maybe brought everything in a little mainstream. Just simplified runners in scoring position, tried not to make guys do too much."
Gaston's players were pleased to hear about the extension.
"We've obviously played much better since he and his staff have been here," center fielder Vernon Wells said. "It's good to know who we are going to have leading us into next year."
The 64-year-old Gaston is Toronto's first two-time manager and the fourth-oldest skipper in the majors. He joined the Blue Jays as a batting coach in 1981 and became manager for the first time in 1989, replacing Jimy Williams. Gaston led the team to four playoff appearances and two World Series titles before he was fired in the final week of the 1997 season.
Gaston didn't manage elsewhere after being let go by the Blue Jays. He returned as hitting coach in 2000 but was not retained after the 2001 season. He began serving as a special assistant to the president and chief executive in 2002, and worked with Toronto's hitters during spring training.
"I always thought it was a good club, it just wasn't playing up to its potential," Gaston said. "We still haven't. We've played OK but I think we can get better."
An announcement on Toronto's coaches is expected before the end of the season. Pitching coach Brad Arnsberg, bench coach Brian Butterfield and bullpen coach Bruce Walton are holdovers from Gibbons' staff, while third base coach Nick Leyva, first base coach Dwayne Murphy and batting coach Gene Tenace were hired along with Gaston.
"All the coaches are going to be invited back, and it's up to them," Ricciardi said. "We're very happy with all of them."