Renault completed its 2017 lineup, and another part of the driver market puzzle, by announcing ahead of the season's penultimate Brazilian Grand Prix that Palmer, 25, would be staying put.
The British-based manufacturer team has already signed experienced German Nico Hulkenberg from Force India and the second seat had looked like a toss-up between Palmer or Magnussen.
Magnussen, 24, pre-empted that by turning down a one-year offer in favour of a longer-term opportunity at Ferrari-powered newcomers Haas in place of Mexican Esteban Gutierrez.
Renault said the combination of Palmer and Hulkenberg offered “a very promising driving force to meet our goals.
“Jolyon understands the team's spirit and motivates everyone he works with,” said Renault Sport chairman Jerome Stoll. “The lineup of Jolyon and Nico harnesses the benefits of continuity and fresh blood.
“I am sure that having Nico as a team-mate will help push Jolyon to greater achievements.”
‘Steep learning curve’
Palmer, a former GP2 champion, said he was “over the moon” and eager to reward the team's faith in him.
“For me, it's been a steep learning curve driving in Formula One and I know that I am performing better than ever, and that there's still more to come,” he said.
Renault thanked Magnussen, who made his debut with McLaren in 2014 and was a reserve with that team in 2015 before Renault signed him in January, for his contribution.
Haas, eighth overall in the championship and one place ahead of Renault, this season became the first US-owned team in 30 years.
French driver Romain Grosjean has scored all their points, however, with Gutierrez saying in September he was exploring other options.
Magnussen has scored seven points for Renault from 19 races compared to one for Palmer, who was signed by the team when it was still known as Lotus, and has also out-qualified Palmer 12 times to seven.
Ocon to Force India
Meanwhile, French driver Esteban Ocon will race for Force India in 2017 after agreeing a multi-year deal, the Silverstone-based team said at the Brazilian Grand Prix on Thursday.
Ocon replaces Hulkenberg in the line-up alongside Mexican Sergio Perez at a team currently fourth in the championship.
The 20-year-old is contracted long-term to Mercedes, Force India's engine provider, and made his debut this year with the lowly Manor team as a mid-season replacement for Indonesian Rio Haryanto.
"I'm still relatively new to Formula One, but spending half a season at Manor Racing has given me some valuable experience and I feel ready for this new opportunity," he said.
Original source: Renault, Force India confirm 2017 drivers