Following a similar move to retain the services of Marcus Harness, the 27-year-old is now contracted to the club for another season.
His previous pay-as-you-play deal at Fratton Park following his free transfer move from Norwich last summer was set to expire at the end of June.
Thompson, whose career had been interrupted by injuries, featured 38 times for the Blues during his maiden season for the club, scoring once.
Twenty-two of those came as starts in the league, with his importance to the side and influence gaining momentum as the season progressed and his fitness developed.
His central midfield partnership with Joe Morrell became Cowley’s preferred option in his engine room.
And with the manager placing emphasis on continuity heading into this summer’s transfer window, he admitted he was delighted to have ‘fire-fighter’ Thompson on board again for the 2022-23 season.
Cowley said: ‘We are really pleased to be able to extend Louis’ time with Portsmouth Football Club.
‘As the season unfolded, we saw his fitness develop and his levels of performance continue to grow and grow.
‘He adapted his role to benefit the team, giving us more defensive qualities, and is outstanding at putting out fires.
‘But, importantly, Louis also has the technical abilities required to then be able to start our counter-attacks.’
The options taken on both Thompson and Harness means the Blues have now secured the futures of two of their soon-to-be 12 out-of-contract players.
New deals for Jayden Reid and Jay Mingi are also expected.
Meanwhile, Pompey are growing in confidence that they can bring back Leicester’s George Hirst – and this season’s top scorer – for a second loan spell next term, despite reported interest from Ipswich and the Championship.
However, the futures of Fratton favourites Sean Raggett, Aiden O’Brien and Michael Jacobs remain up in the air.