The Liverpool midfielder has scored four times in 32 games for the Blades since joining them in the summer.
"Conor has steadily improved throughout his time here and as a young player we are more than pleased with his progress, hence the decision to extend his stay," said Blades boss, and former Red, Nigel Clough.
"It was always the intention to keep him here and after his performances in the last few weeks the decision became easy, especially with Liverpool keen for him to gain further experience in our first team.
"We told him recently that we wanted to see him chipping in with more goals, then he goes and scores against Nottingham Forest and at Gillingham."