The Anfield talisman has had a difficult 2011 through injuries, but has made it back to first team action after groin and ankle problems.
The veteran midfielder scored the only goal of the game on Wednesday night to give The Reds a 1-0 win over Manchester City in the Carling Cup semi-final first leg, and is delighted with the new terms.
“I’m very happy; it’s a very proud day for myself and my family,” he told the club’s official website.
“It comes on the back of a fantastic team performance last night when we got the result we were looking for. Hopefully we can finish the job off in two weeks’ time and take all of our magnificent fans down to Wembley for a day out.
“The contract extension coming the day after has been the icing on the cake so it has been a perfect 24 hours.
“This is the club I love and is the club I have supported since I was a young boy. I am living the dream as the captain of one of the biggest clubs in the world.
“I love coming to work every day and the experiences I have had since I was eight years of age and first signed for the club, I wouldn’t change them for the world.
“To extend that and to hopefully have some more good times in a red shirt is what I want,” he concluded.
By Gareth McKnight