A host of clubs were interested in the 23-year-old and the news of his new deal delights boss Martin Scott.
Scott said: "I think it is a big boost on top of the new signings.
"It is important that the club is seen to be looking after the players who have done well for us.
"The lads who have been here for a bit of time are showing commitment to what we are trying to achieve and Michael Nelson has been a massive part of what the team has done in recent years.
"It was vital that we got Michael to sign a long-term contract."