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The agreement includes an incentive option for a two-year extension, based on the number of appearances he makes.
The contract has a 200-million-euro ($223m) buyout clause and will be signed in the coming days, Barca said in a statement.
Busquets, who made his debut for Barcelona in 2008, has played 384 official matches with the first team, scoring 12 goals.
The 27-year-old has been part of a Barca squad that has won six La Liga titles, three Champions Leagues, four Copas del Rey, three UEFA Super Cups, four Spanish Super Cups and three FIFA Club World Cups.
Busquets has also been a key part of the Spanish national team in recent years, winning the 2010 World Cup and Euro 2012.
