The contract announced Monday by the Islanders will keep the 23-year-old left wing signed through the 2017-18 season.
Bailey, the Islanders' No. 9 pick in the 2008 draft, had 11 goals and eight assists in 38 games and added three assists in six playoff games.
In five seasons, Bailey has 58 goals and 81 assists in 329 regular-season games.
"Josh has become an important member of the young core of the players we have," Islanders general manager Garth Snow said in a statement.
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