Britain introduced the 80% wage subsidy scheme in March and it had been due to expire on Saturday to be replaced with a more targeted and less generous support.
The scheme supported 8.9 million jobs at its peak, and had been forecast to cost around 52 billion pounds over its eight-month lifespan.
Firms will have to contribute 5% of the employment costs for workers covered by the extension, the finance ministry said.
It also said a mortgage payment holiday scheme would be extended for households and business premises which are required to close because of coronavirus restrictions would get grants of up to 3,000 pounds ($3,881) a month.
Mortgage borrowers impacted by the pandemic and who have not yet had a payment break will be entitled to a six-month holiday, while those that have already started a payment holiday will be able to top up to six months, the ministry said.
"I have always said that we will do whatever it takes as the situation evolves. Now, as restrictions get tougher, we are taking steps to provide further financial support to protect jobs and businesses," finance minister Rishi Sunak said.
"These changes will provide a vital safety net for people across the UK."
(Reporting by Guy Faulconbridge and Kate Holton, Writing by William Schomberg, Editing by Alistair Smout)