The club announced the deal on Wednesday after the sides avoided arbitration.
The left-handed reliever was 3-2 with a franchise-record and major league-best 1.20 ERA in 56 games last season, when Kuo earned $975,000. He made the All-Star team and inherited the closer's spot when Jonathan Broxton struggled.
Kuo had asked for $3,075,000 in arbitration and had been offered $2.55 million.
Los Angeles has one player remaining in arbitration: infielder James Loney.