Michael Schumacher has extended his Mercedes deal for another season, the German weekly Sport Bild reports.
The 42-year-old's existing contract was set to run only until the end of next season, but Sport Bild said the seven time world champion is now staying at least until the end of 2013.
"There is no reason why Michael should not continue. He's very valuable to the team and has not lost his edge," said team boss Ross Brawn.
Michael Schumacher hinted that he is not yet ready to return to retirement.
"I have proved I can run in the races faster than my teammate Nico Rosberg; overall we are on the right track. It is unlikely that in 2012 we will be in a position to go for the title, because first we need to lay down the foundation that we can then use in 2013," he added.
Added Mercedes-Benz's Norbert Haug: "Whoever wrote off Michael has been proved wrong. He is driving fantastic races; no one has made up more positions than him on the first lap."
The next step for the Brackley based team is to keep Nico Rosberg beyond 2012, even though reports the 26-year-old could be snapped up immediately by Ferrari have proved wide of the mark.
"Winning with the Silver Arrows is my primary goal, but of course you always keep your options open," he is quoted as saying.
The team looks strong on the technical front, with five former rival chiefs - Brawn and Aldo Costa (Ferrari), Bob Bell (Renault), Loic Bigois (Prost) and Geoff Willis (HRT) - all now peddling for Mercedes.