Paredes, 21, had spent the last two seasons in Portland on loan from Club America before his full transfer was finalized with Thursday's announcement.
The midfielder has five goals and five assists in 48 games for the Timbers during his time in MLS across all competitions. He started 19 of his 22 appearances for Portland last season, bagging four goals and dishing out two assists in 1,651 minutes.
"Cristhian is a young, dynamic midfielder with a very bright future and we are thrilled to finalize an agreement with Club America to keep him in Portland long-term," Timbers general manager Gavin Wilkinson said in a club release. "He's a player we value a great deal and securing his rights this offseason was a top priority for the club."
Paredes, a Paraguay international with six senior national team caps, starting his professional career with Paraguayan side Sol de America where he scored four goals in 30 appearances before he was acquired by Club America, where he never made a league appearance. He did score one goal in two appearances in Copa MX play before he was loaned to Portland in February 2018.
"Cristhian has been an important component of our roster and we made it a priority to have him back on the team," Timbers head coach Giovanni Savarese said. "He's a two-way player who covers a lot of ground. He's a player with a very high ceiling in this league."