Hodge has played five Tests for Australia

Hodge has played for the Red Rose county for the last two seasons, in between being called up for Australia and Australia A.

Hodge said: "The squad has an excellent blend of youth and experience and should challenge for honours again."

The 31-year-old played five County Championship matches last season and topped the batting averages with 74.4.

He will be the club's sole overseas player from the 2008 season when the rule-change in the number of foreign players comes into effect.

Coach Mike Watkinson said: "Brad is a quality player and a valuable member of our squad and it's great news that he will return for at least two more seasons."

Lancashire also confirmed four players - Iain Sutcliffe, Paul Horton, Simon Marshall and former Lancashire Academy player Karl Brown - have signed new contracts.

And Dominic Cork, James Anderson, Mal Loye, Glen Chapple, Mark Chilton, Gary Keedy, Sajid Mahmood, Kyle Hogg, Gareth Cross, Steven Croft and Tom Smith have all agreed extensions to their current contracts.

Steven Mullaney also joins the squad following his successful spell with the Lancashire Academy and his one year scholarship with Lancashire in 2006 during which he made his first team debut.