The company's chief executive Bridget Blow insists the original contract, which was signed in 1998, is being extended by three-and-a-half years, to 2009.
She said the total value of the deal will rise from£22m to£40m, extending the firm's forward order book by£6m.
'As well as making significant improvements to the benefits administration service at Islington, we have successfully implemented a training accreditation scheme, invested in new technology by installing one of the latest benefits processing systems on the market and strengthened our management team,' she added.
and these have to be met before any decision is made on the future of the contract.
Mr Hitchins said the 1998 contract is worth£24m and any decision on whether to extend its worth or time-scale will depend on the outcome of an extensive review in 2005.
He added: 'The people of Islington deserve a better service and I believe signing this [revised] contract is a real step forward.'
The housing benefit service was criticised in the local government ombudsman's annual report because a large proportion of housing benefit complaints involved the borough.