The former assistant had originally taken charge of Basel on an interim basis in October following Thorsten Fink's decision to leave for Bundesliga side Hamburg.
However, an unbeaten sequence of six wins in seven league matches, coupled with their 2-1 victory against Manchester United in Europe's most elite club competition has prompted the club to tie him down until 2014.
"We have been convinced of Heiko right from the beginning and given the results in the last week this is a logical step," Basel vice-president Bernhard Heusler told UEFA.com on Tuesday.
Basel are seven points clear at the top of the Swiss Super League and will discover their opponents in the last 16 of the Champions League on Friday.
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