The Uruguayan has enjoyed a sensational 2013, scoring 27 times in 25 games, while he has netted 17 times in just 11 Premier League matches this season.
|8/11||Luis Suarez is 8/11 with bet365 to score 30 or more league goals this season|
"I am delighted to have agreed a new deal with Liverpool and have my future secured for the long term," Suarez told the club's official website.
"We have some great players and the team is growing and improving all the time. I believe I can achieve the ambitions of winning trophies and playing at the very highest level with Liverpool. My aim is to help get us there as quickly as possible."
Suarez made no secret of his desire to leave the club during the summer, with Arsenal failing with two bids during the transfer window after being led to believe an offer of over £40 million would trigger a release clause.
However, the 26-year-old insists the "special relationship" he has with Liverpool supporters has persuaded him to commit himself to the Anfield outfit.
He continued: "Without doubt the backing I have received from the Liverpool fans has influenced my decision. I am so proud to represent them and go out to do my best for them every time I pull on the shirt.
"We have a special relationship; they have love for me and in return I love them back. I will always do my best for them and hopefully we can achieve success together."
Manager Brendan Rodgers hailed the new deal and the impact it will have on the players, club and supporters.
"This is fantastic news for everyone associated with the club; the team, the owners and most importantly the supporters," he said.
"Luis is a world-class talent and securing his services is crucial for what we are trying to achieve here.
"What's most important and most exciting is that, at just 26 years old, his best years are still ahead of him and we now know we'll be seeing him reach that potential in a Liverpool shirt."
Liverpool owner John W. Henry, meanwhile, suggested Suarez's contract is an indication that the club are moving in the right direction.
He said: "We are committed to working hard to keep our best players and this is an indication that we are moving in the right direction and moving at a pace that impresses one of the best players in world football."
Liverpool chairman, Tom Werner, added: "This demonstrates our commitment, as an ownership group, to building a team that competes at the highest level both in the Barclays Premier League and in Europe.
"Our primary motive is to do what is best for Liverpool Football Club and today's news is another significant step forward on this journey."