Koln are currently in 11th place on 38 points, 10 above the relegation playoff spot with three games remaining, after losing just one of their last six league games.
The 51-year-old joined in 2021, after having led second-tier Paderborn into the Bundesliga, and guided Koln in his first season to a seventh place finish and to the Europa League competition.
He has quickly become a fan favourite, firing them up with his passionate involvement in the game from the sideline.
"Our development as a whole speaks for itself. Steffen and his coaching staff are working with consequence and systematically along a clear philosophy," said Koln managing director Christian Keller.
"With his clear signature, Steffen has formed a strong collective where a large amount of togetherness and team spirit can be found."