He was out of contract at the end of June but has been rewarded for his consistent form which saw him feature in 33 of Fulham's 38 league games last campaign.
Next season, Murphy will compete to play in midfield with recent signings Andranik Teymourian and Zoltan Gera.
But his new deal is likely to pave the way for Steve Davis to make his loan move to Rangers permanent.
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