Terms of the contract were not disclosed but Denver media reported it to be a four-year deal worth $42 million.

Gallinari, acquired as part of a blockbuster 13-player trade last year that sent four-time All-Star Carmelo Anthony to the New York Knicks, is averaging career-highs in points (17.4), rebounds (5.2), assists (2.8) and steals (1.7) this season.

"Gallo has been excellent and done everything we have asked since we made the trade last February," Nuggets executive vice president of basketball operations Masai Ujiri said in a statement.

"Everybody is seeing how talented he is, and he's only 23 years old. He is only going to get better."

Gallinari, originally taken sixth overall by the Knicks in the 2006 NBA Draft, is Denver's top scorer and set a career-high with 37 points in a double-overtime victory over the Knicks on January 21.

Denver have won four straight games and are locked in a battle with Oklahoma City for top spot in the Western Conference.

(Reporting by Frank Pingue in Toronto; Editing by John O'Brien)