Under the agreement, Prada will remain the exclusive mobile phone partner of Korean manufacturer LG, after the two companies first came together in 2006.
LG and Prada released two premium 'featurephones' in 2007 and 2008, collaborating on design of the software, user interface, casing and packaging.
The first Prada-branded phone, the LG 1.0, sold over one million units and is now part of the permanent collection in New York City's Museum of Modern Art (MoMA) and the Museum of Contemporary Art (MOCA) in Shanghai.
LG and Prada will launch the Prada phone by LG 3.0 in early next year, although few other details have been confirmed about the new premium smartphone.
"The partnership between Prada and LG has always been characterised by an innovative approach and uncompromised quality of style, design and breakthrough technology," said Patrizio Bertelli, the chief executive of Prada Group.
"These values are common to both our brands, which have always anticipated, and often set, the trends in many fields. We were therefore delighted to cooperate again with LG in the development of the latest creation of the mobile communication industry."
LG Electronics Mobile Communications president and chief executive Dr. Jong-seok Park added: "Our working relationship with Prada is unique in its longevity and success, something no other phone company and fashion brand have been able to replicate.
"Having successfully launched two Prada phones by LG, we look forward to collaborating further to develop premium handsets representing the most sophisticated style."
> Samsung mocks Apple iPhone fans in new ad campaign
> Nokia Siemens axes 23% of workforce