It follows a report by Sky's City Editor Mark Kleinman that Monarch's future was hanging by a thread as the company held emergency talks with regulators.
Britain's fifth-biggest airline had a deadline of midnight on Saturday before its Air Travel Organiser's Licence (ATOL) expired.
This is the third time Monarch has been handed a temporary extension in four years, and sources had said that the operator's travel subsidiary was likely to be placed into administration within days if a further extension was not secured.
The extension means holidaymakers can purchase ATOL-protected trips from Monarch on Sunday - covering them on whatever date in the future their trip takes place.
A potential 100,000 passengers would be left uncertain about their travel plans home from the European Union and Turkey.
It said that in certain circumstances this could require a temporary extension to complete this process.
"However, we can confirm that ATOL protection will remain available for eligible holiday bookings made with Monarch on Sunday".
The CAA said it would provide a "daily update" on Monarch's ability to operate its package holiday arm.
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More than 2,500 people work for Monarch, with about 800 employed by its engineering business - a division which is likely to be able to continue trading under another owner.
But the airline, expected to carry a total of about six million passengers from Manchester, Leeds, Birmingham, Gatwick and Luton airports this year, has admitted it is undertaking a "comprehensive review" of its operations.
Last year, Monarch required a 12-day extension before its ATOL was renewed by the CAA, with controlling shareholder Greybull Capital orchestrating a £165m rescue package.
On Thursday Monarch, which is grappling with competition from low-priced rivals, said it was talking to potential partners after a report that parts of its short-haul network would be sold.
Sources told Sky News that the CAA had been making contingency plans in recent weeks in order to prepare for a rejection of Monarch's licence due to financial concerns, but that airplane capacity was limited due to hurricane related evacuations from the Caribbean.
If it does collapse, Monarch's assets would be targeted by rivals such as easyJet, although the shares of the company would be worthless.
Monarch filed accounts in August, for the year up to October 2016, showing a loss of £219m, down from a profit of £26.9m in 2015.
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