Pako Ayestaran has been appointed Valencia coach until 2018, the La Liga club said on their website on Tuesday.
The 53-year-old Spaniard took over the first team until the end of the season after former England international Gary Neville was sacked in March.
Ayestaran guided Valencia to 12th place in the league standings after a relegation scare, winning three of his eight games in charge.
He previously managed Israeli side Maccabi Tel Aviv, guiding them to the Premier League title in 2015. While before that he was assistant manager at Valencia and Liverpool under Rafael Benitez - under whom he won La Liga, FA Cup and Champions League titles.