Fa'alogo has played 29 first grade games since making his NRL debut with Souths in 2003 and will now remain in the red and green until at least the end of 2006.
The 24-year-old has already broken through into the New Zealand rugby league team.
"David has been a solid performer for the Rabbitohs over recent seasons and his efforts during the pre-season have been fabulous," Souths CEO Shane Richardson said today.
Fa'alogo aid he was happy to have secured his future at the Rabbitohs.
"The Rabbitohs gave me my break into the NRL a couple of years ago and I'm very happy to be staying on for the next two years," he said.
"It's a big season coming up and I can't wait for the football to start."