The 38-year-old spinner skippered the side to the Division Two title in 2015.
"We've got a very special set of players at the moment and it's a great honour to be able to lead them onto the field," he told the club website.
"Promotion last season was just the start of what we can achieve. I look forward to playing my part in our continued development."
Batty is currently in his second spell at The Oval, having played for Surrey between 1998 and 2001 before returning to south London ahead of the 2010 campaign.
He was appointed captain at the start of this year and took 40 first-class wickets at an average of 28.17 last season as Surrey won promotion to Division One.
"Batts is playing an incredibly important part of what we're trying to achieve at Surrey," director of cricket Alec Stewart said.
"He has shown real leadership qualities on and off the field and his all-round contribution in the progress we are making should not be underestimated."

Media playback is not supported on this device
Sunday's 3-1 defeat at Premier League rivals Watford means United have lost their past three matches.
"Some individuals probably feel the pressure and responsibility too much," said former Chelsea boss Mourinho.
"We started the season very well. But was I thinking that my team was ready, perfect, unbeatable? Not at all."
He added: "I was completely aware that we were not perfect, with lots of players who are not end products and can make their own mistakes."
Mourinho has lost three consecutive games in a season for the first time since February 2002, when he was Porto boss.
United won the Community Shield and their opening three league games under the former Real Madrid manager, who replaced Louis van Gaal in the summer.
But defeat by neighbours Manchester City at Old Trafford last weekend was followed by a disappointing Europa League loss at Feyenoord on Thursday.
On Sunday, Watford led through Etienne Capoue's first-half strike, only for teenage United striker Marcus Rashford to level from close range.
Hornets substitute Juan Zuniga scored with seven minutes to go before Troy Deeney sealed the win with an injury-time penalty.
The defeat leaves United seventh in the table with nine points from five games.
Media playback is not supported on this device
Mourinho believes his team have fallen victim to a number of unfair refereeing decisions and felt they were harshly treated against Watford.
He thought Anthony Martial was fouled in the lead-up to Watford's first goal.
Mourinho also claimed United were denied a penalty in the 2-1 derby defeat by City, while a Feyenoord player appeared to be offside in the build-up to their goal in last week's 1-0 win in the Netherlands.
"The referees' crucial mistakes are not in my control, there is nothing I can do about that," said Mourinho. "That is not under my control.
"So we were punished by these mistakes and I can't do anything about it."
Surrey captain Gareth Batty has signed a new contract which will keep him at the club until the end of 2017.
[NEXT_CONCEPT]
Manchester United's players may be struggling under the pressure of playing for the 20-time English champions, says manager Jose Mourinho.