Mr Fallon said this second reprieve for the eight bombers based in Cyprus would ensure the RAF retained "the essential precision firepower, intelligence and surveillance" capabilities needed for operations against IS - also known as Isil.
Speaking in Baghdad, where he has met Iraqi officials, he said Iraq needed British help with air support, training and equipment, but not with ground troops.
"RAF Tornados have carried out hundreds of strikes, helping Iraqi forces push back Isil from the Kurdish region and out of key towns such as Tikrit and Bayji," he said.
"We want to ensure we maintain this crucial operational tempo and so we will extend the lifetime of Number 12 Squadron for a further year to March 2017."
Islamic State crisis: UK to extend air strikes over Iraq - BBC News