Bradley Smith will join KTM as a factory rider when enters MotoGP next year.
The Briton has been one of the championship's top satellite riders in recent seasons with the Tech3 Yamaha outfit, and he announced on Wednesday that he was set to leave the team at the end of 2016.
Smith, who will start today's Qatar Grand Prix in 11th place, has now signed a new deal to ride for the Austrian brand in 2017 and '18.
KTM's development RC16 turned its first laps last November, and testing has continued this year.
"The MotoGP project is running exactly according to plan," KTM motorsport director Pit Beirer said.
"Both the engineers at the factory and the test team are achieving highly professional work with two bikes and their test riders.
"By signing Bradley Smith as factory rider for two years we can now take the next step in the long journey to MotoGP.
"At just 25, Bradley is competing in his fourth season in the premier class.
"He rode his way to second place in Misano and last season as overall sixth, he was clearly the best rider among all the customer teams."
KTM's test line-up includes Randy de Puniet, Mika Kallio, Alex Hofmann and Thomas Luthi.
Its 2017 MotoGP campaign will be formally launched at the Austrian Grand Prix in August.