"My heart is with Liverpool so I'm delighted to sign this new deal," the 48-year-old Spaniard told the club's website (www.liverpoolfc.tv).

"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."

Benitez arrived from Valencia in 2004 and despite failing to end their wait for the top-flight title stretching back to 1990 he has re-established Liverpool as a European powerhouse, winning the Champions League in 2005 and reaching the final two years later.

Last week Liverpool reached the quarter-finals of the Champions League with a 5-0 aggregate rout of Real Madrid and on Saturday, Benitez's men thrashed Premier League leaders Manchester United 4-1 at Old Trafford.

"It is wonderful news Rafa has made a long-term commitment to the club," American co-owner Tom Hicks told Liverpool's website. "Since he became manager he has been responsible for the great progress we have made.

MORE SUCCESS

"I know he will continue to build on his achievements as he has a tremendous hunger and desire to bring more success to the club, success our fans and everyone connected with the club deserves."

As well as winning the Champions League, Benitez also lifted the FA Cup with Liverpool in 2006, but his time at Anfield has not always run smoothly.

In 2007 he fell out with Hicks and co-owner George Gillett after publicly criticising transfer policy.

Liverpool's failure to challenge United and Chelsea for the title until this season has also frustrated the fans.

In addition, his failure to sign a new contract fuelled speculation Benitez would leave for hometown club Real Madrid.

This season Liverpool surged clear at the top of the table before Christmas. But their title push has faded over the past three months and despite league doubles over Chelsea and United they are again rated outsiders.

Benitez was also criticised for his treatment of Robbie Keane before selling the Ireland striker back to Tottenham Hotspur in January.