Milne's contract was due to expire at the end of 2011 but he has committed to the Saints for next year.
Second-year player Nick Winmar has also signed on the dotted line, agreeing to terms for a further two years.
The 20-year-old made his debut in the round nine win over Melbourne and played the following week against Fremantle before returning to VFL team Sandringham.
Winmar, who is a second cousin of St Kilda legend Nicky Winmar, was drafted by the Saints with pick 32 at the 2009 NAB AFL Draft.
Milne is the Saints' leading goal kicker this year with 25 from his 13 games.
The 31-year-old sits fourth on the all-time list of St Kilda goal kickers with 459, three ahead of captain Nick Riewoldt.
Saints CEO Michael Nettlefold said Milne was a highly valued part of the club.
"To retain someone of the character of Stephen Milne gives us great confidence in the ongoing stability and success of the club," Nettlefold said.
"Stephen’s leadership within the Club as well as in the broader community is certainly a credit to him and a quality greatly valued by everyone at the Saints."
Nettlefold also praised Winmar, who is one of eight players to debut for the Saints this season.
"To secure a young player with the talent and potential of Nick Winmar is a great outcome and really places us well for the future."
Luke Holmesby covers St Kilda news for afl.com.au. Follow him on Twitter: @AFL_LHolmesby.
