ESPN's Adrian Wojnarowski and Brian Windhorst reported the extension is worth $170 million over four years.
Harden, who signed a four-year, $118 million extension with the Rockets last July, became eligible for the designated player veteran extension by virtue of making the All-NBA team.
According to Wojnarowski, Harden will now earn $228 million total through the end of his contract.
"Since he arrived in Houston, James has exhibited the incredible work ethic, desire to win, and passion to be the best that has made him one of the most unique and talented superstars in the history of the game," Rockets owner Leslie Alexander said in the team's statement. "Additionally, the commitment he has shown to our organization, the City of Houston, and Rockets fans all over the world makes him a perfect leader in our pursuit of another championship."
Wojnarowski and Windhorst also reported Saturday the Rockets "are turning full attention" to completing a trade with the New York Knicks for Carmelo Anthony after putting a bow on Harden's extension.
"Houston is home for me," Harden said, according to the team's official Twitter account. "Mr. Alexander has shown he is fully committed to winning."
According to the terms of his 2016 extension, Harden will earn $28.3 million next season and $30.4 million during the 2018-19 campaign before the new DPVE terms kick in.
The MVP runner-up last season, Harden averaged 29.1 points, a league-high 11.2 assists and 8.1 rebounds while shooting 44.0 percent from the field and 34.7 percent from three.