Phillip Hammond, a key Remainer, said Tuesday in parliament that keeping Carney at the central bank will "ensure continuity through what could be quite a turbulent period for our economy".
Mr Hammond said he was "delighted" that Mr Carney would serve seven more months "to support a smooth exit from the European Union and provide vital stability for our economy".
British media had previously reported the finance ministry was keen for Carney to extend his stay and was having difficulty finding a suitable successor.
He'll now remain in office until the end of January 2020, roughly halfway through a period meant to smooth the U.K.'s withdrawal from the European Union.
Speculation had mounted in recent weeks that Carney would be asked by the government to remain at the central bank.
According to the Financial Times, May gave her approval to the idea which would likely see Carney remain in the role until the second half of 2020.More news: Casey withdraws after 3rd round of BMW Championship
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The Chancellor had cited a desire to keep carney at the helm so as to help ensure a smooth Brexit from the European Union. However, it is understood they now have a good relationship.
"I am willing to do whatever I can in order to promote both a smooth Brexit and an effective transition at the BoE".
"I deeply appreciate your support and that of the prime minister".
Mr Carney had been due to step down from the role at the end of June 2019 - two years short of the eight-year term governors usually serve.
"In a sea of Brexit political pygmies the governor of the Bank of England is one of the only sane voices at the table, so it is welcome news he is staying on".
Having an inexperienced leader at Threadneedle Street at such a moment would nearly certainly be unhelpful.