Halak, 28, split his eighth NHL season between St. Louis and Washington, compiling a 29-13-7 record. The native of Slovakia was acquired by New York from Washington for a fourth-round draft pick and could have become a free agent.
Halak won the Jennings Trophy in 2011-12 for helping St. Louis allow the fewest goals in the league. He has a 144-85-29 record with a 2.38 goals-against average, a .918 save percentage and 30 shutouts.
The Islanders also will retain their first-round selection in this year's draft, instead sending their top pick in 2015 to Buffalo to complete a previous trade for Thomas Vanek. The selection, at the Islanders' option, was packaged in the team's deal for Vanek on Oct. 27, 2013.
Vanek played 47 games for New York and now is with Montreal.