The former Valencia boss, who led the Reds to Champions League glory in 2005, has been in talks with the club for much of the season.

Benitez said last night: "My heart is with Liverpool, so I’m delighted to sign this new deal.

"I love the club, the fans and the city and with a club like this and supporters like this, I could never say no to staying.

"I always made clear I wanted to be here for a long time and when I complete my new contract it will mean I have spent over a decade in Liverpool."

It is believed that there had been eight different drafts of the contract on offer, with Benitez sticking out for the near absolute control of the club he wanted. And he has finally put pen to paper within weeks of chief executive Rick Parry’s announcement he would be leaving the club in the summer. Parry and Benitez had clashed previously.

Benitez said: "I would like to thank the owners for their hard work in finalising the deal. All of us at the club want the same thing, to be successful winning major trophies."

The completion of contract talks with Benitez is the third major boost for Liverpool in recent days, after wins against Real Madrid and Manchester United. The 4-1 win at Old Trafford saw Benitez achieve 100 league wins in the third fastest period of time for a Liverpool manager, surpassing Bill Shankly.

Liverpool Co-Chairman Tom Hicks said: "It is wonderful news that Rafa has made a long-term commitment to the club. He has been responsible for the great progress we have made. I know he will continue to build on his achievements as he has a tremendous hunger and desire."

Co-Chairman George Gillett added: "With Rafa continuing, we can look forward to more great football and success on the pitch. He has special abilities and qualities. Coming after our excellent wins over Real Madrid and Manchester United, this gives us great momentum going into the final stages of the season."

Under Benitez, Liverpool won the Champions League in Istanbul in 2005, the FA Cup in 2006 and reached another Champions League final in Athens in 2007.