"It was a very difficult decision but, with a World Cup next year and the fact that I believe Leinster can continue to win trophies, I have decided to commit my immediate future to the province.
"I am very excited about what Ireland can achieve under Joe Schmidt and I am confident that under Matt O'Connor, Leinster will remain the power in Europe it has been over the past five or six years.
"I want to acknowledge the professionalism of all those involved, including the overseas clubs with whom I had discussions, and thank Leinster and the IRFU for their commitment to me.
"Finally a word about the Leinster fans because their 'voice' represents an important consideration for players like me when it comes to making big career decisions such as this."
Sean made his senior debut for Leinster against Cardiff Blues in September 2008 and has since made 87 appearances for his native province, scoring 15 tries.
He made his Ireland debut in the 41-6 win over Fiji at the RDS in November 2009. The 26-year-old has won 30 caps for Ireland and was named ERC Player of the Year in 2011.
The Tullow man's last appearance for Ireland was in the 22-20 loss to New Zealand in November.
O'Brien toured Australia with the British & Irish Lions in 2013 and played a pivotal role in the decisive third Test at the ANZ Stadium. He has won three Heineken Cups, an Amlin Challenge Cup and a PRO12 league title with Leinster.
IRFU Chief Executive Philip Browne said: "Sean is one of world rugby's stand-out talents. He has proven for Leinster, Ireland and the Lions that he is world class player and we are delighted that Sean has committed his future to Leinster and Ireland for the next two years."
Leinster Chief Executive Mick Dawson commented: "We are delighted that Sean has signed a new IRFU contract which keeps him at Leinster up to the end of the 2016 season.
"We were always hopeful that the environment we have created here at Leinster and the ambition of the province would be a strong factor in Sean's decision. He is a truly world class player and we are delighted that his future has now been put to rest."