The length of the deal was not immediately clear but Suarez told the club website: "I am delighted to have agreed a new deal with Liverpool and have my future secured for the long term."
Suarez, 26, has been in impressive form after a turbulent summer in which he suggested the club had reneged on an agreement to sell him if they failed to qualify for the Champions League.
It had been expected talks would continue throughout the season and that the Uruguayan would want to wait and see whether the Reds secured a Champions League place for next season, but the club confirmed he had signed a new deal.
Suarez told the official website www.liverpoolfc.tv: "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."
The new deal's details weren't revealed but it is expected to make the 26-year-old striker the best-paid player in the club's history.
Liverpool manager Brendan Rodgers said: "Luis is a world-class talent and securing his services is crucial for what we are trying to achieve here."
Liverpool had to fend off interest from Arsenal in the summer, rejecting an offer of STG40,000,001 ($A74.36 million), but their determination to keep Suarez has paid off with the Reds now second in the Premier League and the Uruguayan the leading scorer in the top flight with 17 goals, four ahead of his nearest rival.
Suarez's spell at Anfield has often been controversial after he was handed two long-term bans, one for racially abusing Manchester United's Patrice Evra and last season for biting Chelsea's Branislav Ivanovic.