Sainsbury's customers will still be able to collect and redeem Nectar points, and the retailer will be testing LMG's new data analytics service, which examines customer purchases to provide insight into customer trends.
Justin King, Sainsbury's CEO, said: "We have reviewed our participation in Nectar as part of our 'Making Sainsbury's Great Again' recovery plan and the renewal of the contract confirms we're confident that customers value the rewards they can collect."
The announcement quashes persistent speculation that Sainsbury's would cancel its contract with LMG, after the loyalty company posted an operational loss of £40m in 2004, two years after launch.
Alex Moorhead, CEO of LMG, has defied the doubters to retain the Sainsbury's contract. "The extension of our relationship through the provision of more detailed data analysis will enable Sainsbury's to make better informed decisions across its business and more tailored offers to customers."
LMG claims that Nectar is the UK's largest customer reward programme, with more than 10m households participating in the scheme. Last week, the company revealed it had secured the partnership of Gala Bingo, in line with its plans to extend into the leisure industry.