The defender, 28, has penned a deal which keeps him at the club until the end of the 2010-11 season.
He has been at the club since the summer of 2001 and has already passed the 300-appearance mark for the club.
Murphy has been a part of both promotion-winning and relegated sides, helping the club regain their Football League status at the first time of asking.
Manager Greg Abbott told the club's official website: "Peter is an excellent professional who has shown in recent weeks just how important he can be to the side.
"He is widely acknowledged throughout the club as a really hard worker and that comes through in the way that he plays on a Saturday. I am delighted that he has decided that he will continue to do his bit for us."
Abbott is fighting to keep striker Danny Graham at the club through the January transfer window.
Graham, 23, is reported to be a target for League One rivals Huddersfield Town, with Abbott hoping that Graham stays put at Brunton Park.
Graham has scored 40 goals in 96 appearances for the Cumbrians, with 16 of his strikes coming this season.