Pilling has gained plenty of senior experience in his two seasons as a professional, playing on loan with Trafford, Glossop North End and Ashton United in the Evo-Stik League Premier and North.
He also made his full debut for Rovers in the final regular league fixture of last season away against Maidstone United, helping a young side to a 1-0 victory.
During the summer, he was part of the Wales under-20 squad at the prestigious Toulon Tournament where he helped his team remain unbeaten, narrowly missing out on a semi-final place but earning himself the goalkeeper of the tournament award.
The club have rejected an offer from a Championship club for Pilling and Tranmere manager Micky Mellon said: “I’m pleased that we’ve been able to keep Luke in the group for the coming season.
“There has been interest from other clubs, but he has the hunger and desire to want to be a footballer at Tranmere Rovers.
“Like many of the young players at the club, he has been out on loan and gained plenty of experience of senior football and is improving all the time.
“We say to all the young players, there is a pathway here that if you do well on and off the pitch, there is a route into the first team and that will be the case with all the young lads at the club.”
After putting pen-to-paper, Pilling said: "I'm really pleased to have signed. I've been at the club since I was six years old. I'm a local lad and there's nothing better than playing for your local club."
Meanwhile, Eric Nixon has made a return to the club as goalkeeper coach.
The former Rovers goalkeeper made 438 appearances for the club over three spells and has also previously been part of the coaching staff at Prenton Park.
He has also coached at Sheffield Wednesday, Fleetwood Town and Chesterfield.
Mellon added: “I’m delighted to add Eric to the coaching staff. He is very experienced and knows the goalkeeping game inside out and is a very good coach.
“I’ve both played and coached with Eric in the past so we know all about each other and he’ll offer great support to the goalkeepers at the club”.