The Bantams began discussions with the Terriers a couple of weeks ago in an attempt to keep Payne and Lewis O’Brien at Valley Parade.
O’Brien was always likely to stay, but Payne had interest from a number of clubs, including League One promotion hopefuls Sunderland.
City, however, were desperate to hold on to the 24-year-old playmaker and offered to raise their contribution to his weekly wage from just below 50 per cent to almost the full amount.
Town, who have an option to trigger an extra year on Payne’s contract, were happy with the new offer and agreement was reached yesterday.
“We have really picked up in recent weeks and I am enjoying being a part of it,” said Payne, who had cut short his loan spell at Oxford United this time last year to join Blackburn Rovers’ promotion push.
“I am really enjoying my football and we are playing a style of football, pressing high and pushing forward, which suits me.
“We just want to kick on now and keep getting the important results we need to move up the league table.”
The deal to keep Payne and O’Brien, the latter having excelled in his first year of senior football, is a big boost for Bradford’s survival hopes.
“A lot of our efforts during the early stages of the transfer window have been spent on ensuring these two players stay with us,” added manager David Hopkin, also in for Bournemouth striker Sam Surridge. “Jack and Lewis will be able to further enhance their careers, while helping us continue with our efforts to remain in League One.”