The decision, announced on Monday, comes in the wake of last week's EU summit where EU leaders approved an extension.
Sanctions introduced in July 2014 in response to Russian action in Ukraine will now run until 31 July 2017, the European Council confirmed in a statement
The decision was expected and the formal process to extend the sanctions on Russia's defence, energy and financial sectors will take place early next week.
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The EU imposed sanctions on Russia after it annexed Ukraine's Black Sea peninsula of Crimea from Ukraine in 2014 and stepped them up as Moscow went on to support a separatist rebellion in Ukraine's industrial east.
It has extended them by six months each time ever since, as Moscow says it would never give back Crimea and the conflict in east Ukraine - which has killed 10,000 people to date - is not resolved despite peace mediation by Germany and France.
Member states have agreed to link the duration of the sanctions to the complete implementation of the Minsk agreements, which was foreseen to take place by 31 December 2015.
Since the Minsk agreements were not fully implemented by 31 December 2015, the Council extended the sanctions until 31 July 2016, and on 1 July 2016, until 31 January 2017.
On Tuesday, Ukraine's President Petro Poroshenko welcomed the decision, saying, "I am sincerely grateful for unwavering unity and solidarity of the European leaders in restoring Ukraine's sovereignty and territorial integrity, including Crimea."
Russian Prime Minister Dmitry Medvedev, however, reacted angrily, saying that Moscow will also continue with its embargo on EU food imports that was put in place in response to the EU sanctions as a countermeasure.
He said, "We have retained those countermeasures so far, but should be ready, as sooner or later this period will end, and competition will be here again."
However, he also explained that the restrictions had been introduced, "not to annoy our Western partners," but rather to give Russian business a boost.