Gerrard, 28, has followed manager Rafa Benitez in pledging his long-term future to the club, which could return to the top of the Premier League this weekend as they chase their first title for 19 years.
"This is fantastic news for the club," Benitez was quoted as saying on the club's website (www.liverpoolfc.tv).
"Steven has once again shown his commitment and it was an easy deal to agree. As soon as we offered him the option he said 'yes'.
"There were no problems at all. He wants to stay for life. This deal sends out another clear message that we are moving forward as a club."
Benitez added: To know we have a player of Steven's quality with us for many more years is a great boost for the club and the fans.
"He is clearly a player who inspires those around him and even though he is playing very well at the moment, I still think his best years are ahead of him."
Dutch forward Dirk Kuyt has also extended his contract by two years, keeping the 28-year-old at the club until at least 2012.
Liverpool are second in the Premier League, a point behind Manchester United and could go top on Saturday if they avoid defeat at Fulham, at least until Manchester United play Aston Villa on Sunday.
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