Larkin is scheduled to make $1.67 million during the 2015-16 season. He is set to make $1,606,080 this season.
The team had until the end of the month to decide to pick up the option.
In 48 appearance during his rookie season, he averaged 2.8 points and 1.5 assists while playing 10 minutes a game.
He is averaging 2.5 points a game in four exhibition games this season.
The Knicks begin the regular season at home on Oct. 29 against the Chicago Bulls.
- Scooby Axson