The right-back’s current deal was set to expire this summer, but Wolves carried the option to extend his stay at the club and only had until the end of May to trigger it.
Financial concerns meant that decision was delayed, but Wolves have now been able to take up the option and keep hold of a player that head coach Julen Lopetegui was determined to remain at the club.
Sporting director Matt Hobbs said: “We’re really happy for Nelson to remain as part of the pack for another two years.
“He’s always been an excellent player, but he has really picked up his form since Julen has come in.
“He’s a player who the manager really trusts, so he’s a very important player on the pitch for us, and as a person, his personality and his work ethic also make him a very important part of the squad off the pitch.
“We’re pleased to have got to the point where we can extend Nelson’s contract and look forward to seeing what he will deliver for the team as he thrives once more under Julen next season.”
Financial fair play worries meant Wolves were initially unable to trigger the clause, but they have now taken a calculated move to keep the player before he became a free agent – although it could have a knock-on effect later in the summer.
“Nelson’s been incredibly patient during this process, and we thank him for that, because there were a lot of factors going on in the background which have caused us to wait until we could get to this point,” Hobbs added.
“Everybody has seen the massive uplift, not just in the performances, but in everything at the football club since Julen came in, and for us to look at extending contracts, we needed to ensure our Premier League survival, and Nelson understood that.
“Once we were mathematically safe, we were able to start working on the plans we had already set out for next season, which included a situation where we could take up the extension in his contract.
“It was never a footballing delay because his performances since he signed for the club meant we have always wanted him to be here, and he has always wanted to be here for these next two seasons, so it’s a good feeling to finally get to a point where everything is sorted and Nelson’s future here at Wolves is secured.”
