The extension includes plans for £70m worth of new services and enhancements to the rail network, including the extension of express services between Edinburgh and Glasgow and additional early morning services to allow passengers from Dumfries, Gourock, Ayr, Kilmarnock, Dunblane, Perth and Kirkcaldy to connect to services arriving in London before noon.
The deal with FirstGroup will also create and manage a £1m "community fund" to encourage small businesses and local communities to make the best use of empty station buildings.
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Announcing the deal, Minister for Transport Stewart Stevenson said: "I am delighted to announce this agreement reached between Scottish Ministers and First ScotRail which brings significant benefits to passengers and delivers value for money for the taxpayer.
"It provides further incentive for the operator to continue to grow Scotland’s railways but, importantly, protects passengers by introducing a cap after which a percentage of profits will be reinvested in services."
Mary Dickson, First ScotRail's managing director, said: "I am delighted for our staff and our customers who will see real benefits from the franchise extension. It is a fitting tribute to the ongoing transformation which has seen improved performance, with a 50 per cent reduction in delays, and a 19 per cent increase in passenger numbers.
"We will now build on these successes with even more investment in Scotland's railway. Customer benefits will range from new train services and improved journey times to enhancements at stations.
Scotrail will also be involved in providing transport for the Commonwealth Games in 2014.
(GK/JM)
