Last season was the first in which Chelsea had not won a trophy since Essien's arrival but the Ghana international has high hopes that he will be earning more medals under new manager Luiz Felipe Scolari.
"I think Scolari is one of the best coaches in the world," he said.
"He has his own way of working and hopefully things will go really well for us this season."
The deal is another strong message of intent from Chelsea as he is the third player to agree new terms in a week following Wayne Bridge and Petr Cech.
Essien, who is set to play in Chelsea's first game of their tour against Chinese side Guangzhou Pharmaceutical tomorrow, is now looking forward to the competition for places in Chelsea's packed midfield.
Scolari has Frank Lampard, Deco, Michael Ballack, John Obi Mikel as well as Essien to choose from in the middle of the pitch.
He said: "When the competition gets keener it brings out the best in all the players.
"Last season we signed new players and people thought I could lose my place.
"But I fought and stayed to maintain my position." Meanwhile, AC Milan confirmed they have spoken with Chelsea about Kaka and Andriy Shevchenko swapping clubs but deny receiving a bid for their man.
Milan vice-president Adriano Galliani said: "Today there are reports of a £120m offer but neither from Chelsea nor from any other club have we received that kind of offer.
"It is true I was on Roman Abramovich's boat as his guest and I asked him for Shevchenko and he asked me for Kaka.
"But it finished 0-0 as we told him no for Ricky [Kaka] and they said no for Andriy."
