The UEFA A Licence coach replaced Lee Clark towards the end of last season with the club sitting in the bottom two.
Former Hartlepool United, Bradford City and Barnet defender Nelson is now charged with keeping the club out of National League North trouble next term.
The former Gateshead coach and Stevenage assistant manager, 40, has been backed to turn things around at Croft Park.
Chairman Tony Platten told the club’s website: “I am pleased to say that we are now addressing matters for next season, whenever that might be.
“Micky has a wealth of experience at all levels of football. He has already started work on the squad he would like for next season.”
Nelson is thrilled to be on board, adding: “I’m just pleased to get it done, especially with all the uncertainty.
“It was unexpected when it first happened a few months ago but when the coronavirus happened, I’ve been in regular contact with everyone at the club.
“I’ve had meetings and there have been a lot of emails exchanged, so it’s something that we have all been working on together.
“I’m extremely delighted to be given the opportunity. It’s a club with a very proud history.”