The Oman international, 35, has made 65 appearances in all competitions since joining the Royals on a two-year contract from Wigan in July 2015.
He was named the club's player of the year at the end of the 2015-16 campaign. Habsi was delighted to put pen to paper on a new contract with the Royals and the experienced shot-stopper said he was thoroughly enjoying life at Reading under manager Jaap Stam.
“I’m very happy and pleased to be part of this team for another two and a half years,” Habsi told the club's website.
“Since I signed my last contract, I feel at home and I feel this football club can go very far. This season has been fantastic and I’d like to thank the club for giving me this opportunity.
“Since coming here last season and winning the player of the year award, it was a fantastic thing for me, my family and for my country, Oman. Today, don’t forget that I am 35. So another two years is brilliant for me to keep myself fit. It gives me hope and desire to keep giving all my experience in football for this club.”
Habsi was full of praise for Reading fans and the backing he has received both home and away since he joined the club in the summer of 2015.
The Omani star said he was proud to continue his career in Europe and is hoping to continue what has been a successful campaign so far this season.
“The fans have been fantastic with me and I want to help Reading finish this season as high up the table as we can,” said the glovesman.
“To have the feedback from the fans and the way they respect me, they support me all the way and the connection we have is great. We want to keep pushing, so we end the season with big smiles on our faces.”
“I’m very pleased to have played for 17 years in Europe,” he recalled. “Three years in Norway, and now with this contract, another 14 years in England. The focus for me and the rest of the team is to push as hard as we can from now until the end of the season.”
Stam is delighted to keep hold of the Oman international, saying, "As we all know, Ali is a great goalkeeper - a fine shotstopper with good reactions, who, even at this stage in his career, is still improving his game and becoming better and better. He is very calm on the ball, which is important for us, especially in the way we want to play out from the back at Reading. "Just as important to this group, Ali is a great person with a very good mentality. So we are all very happy that he has signed another deal at the club."