The 65-year-old became a fan favourite during his first spell with Les Aiglons between July 2016 and June 2018, when he left for Borussia Dortmund, but struggled to get going after taking over in July this year.
Nice were as low as 18th earlier in the season, after failing to win in their opening four league games, but Favre has since presided over an impressive recovery.
The French side are now unbeaten in their last seven games across all competitions, and are only 11 points below Ligue 1's top three.
Nice's star midfielder Mario Lemina has explained that the squad simply needed some time to adjust to their new manager's style and demands.
"He got to know us and we got to know him... Now we know what he expects of us. Something is taking," said Lemina, in an interview with GFFN.
The pressure seemed to get to Favre during a recent press conference, as some speculated that his job may be under threat, but he has since explained that he needed to familiarise the players with his philosophy before the results would come.
"If you want to build a team, you have to choose a system and a philosophy, otherwise you'll waste too much time," he said.
Nice have also managed to qualify for the knockout stage of the Europa Conference League.