Is it a good idea to stay an extra year at my masters institution while re-applying to PhD programs elsewhere? Im getting rejections from my PhD applications and it is rather difficult - emotionally. So, I am doing a 2+3 programme in a non-US country at the moment and I will finish my masters in 4 months or so. 

I have consulted my situation with my current advisor and other professors and they said since I have secured 5 year funding here I can just stay for another year or two if I want to. I am tempted but I don't know how it is going to look to admission committees when I apply again to the States for Fall 2015 entry. Should I just leave after my master's? Or should I stay another year? (I think I will learn a lot by just staying another year, I love my supervisor, and I really like the university but it has always been my dream to study in the States and I am definitely re-applying)
Staying in your university for a year and reapplying is a GREAT plan. I know some of my friends who actually got into 15-20 ranked universities in the US for PhD, they reapplied to the top 10 universities again (for the next term) and they got in those top 10, and they transferred (well, you basically start a new PhD program in the top university). 

As for as you are not concerned about your age (getting old) or number of years (for some reason), you will be totally fine. Since your supervisor is nice, he/she will always understand if you want to go to a better school because its makes sense. Some would say, oh, for PhD it does not matter which university you go to, but it actually matters in most cases. At least, it can be a driving force for you to achieve great things in PhD and make a significant contribution to the scientific community. 

Morally, it would not be the right decision to discontinue your current university with the funding. But it happens if you are aiming high and you have to be decisive. So its up to you. 

BUT, reapplying with one more year of experience with the SAME supervisor will not help. There are several factors involved. Not to mention luck which we cannot control. So BE CAREFUL. Top universities are hard to get into. This year MIT got 3000 applications for EECS PhD, UW got 1500 for CS PhD, and Purdue got 1200 for CS and they offered 40 students PhD admissions. Its incredibly hard. 

So keep your UNIVERSITY as a backup.