The versatile left-footer impressed at full back as the 2013-14 season drew to a close. More than playing his part as Rovers just missed out on a top six position, and it was those displays that prompted manager Gary Bowyer to extend the Swedish international's stay for another year.
"I'm delighted that he has re-signed for another year," said the Rovers boss.
"He has had to wait a long time due to the performances of Tommy Spurr, but the level of displays that he put in at the end of the season against Birmingham, Charlton and Wigan show what a valuable member of the squad he is."
Olsson joined Rovers in January 2012 from Swedish club Halmstads BK following a successful trial, to date he has 49 appearances and 1 goal for the club.
The Swede becomes Rovers' fourth summer signing following the arrivals of Chris Brown, Luke Varney and David Dunn.