The Reds icon, 33 years old, is set to enter his 16th season in professional football with the Reds in 2013-14.
"I think everyone knows what it means to me," Gerrard told the club's official website. "I've been here that long and so, to extend, it's a big day for me and I'm really happy for myself and my family. It's great news.
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"I'm glad it's all done and it's happened at the right time before the season, so I can just focus on playing as well as I can."
Managing director Ian Ayre is delighted to have secured the Anfield hero's future for what he hopes will be "until the end of his career", adding: "It's fantastic for everyone - the club, Steven and the fans.
"He is - and always has been - such a big part of Liverpool. Particularly in this day and age, it's rather unique to find a local player who has given his whole career to his club.
"We're pleased today to add an extension to his existing agreement and that keeps him here until the end of his career.
"We've said what we'll do in two years' time is review it again and see how happy Steven is. We seem to always be happy with him, so hopefully we'll just continue in that vein."