The Brazilian, who has scored 34 goals in 163 matches, will receive £150,000 a week, making him the highest paid member of the squad. The terms of his new contract will kick in from July 2017.
“I would like to thank everybody at the club, first of all.” Coutinho said on the club website.
“I am very happy to sign a new contract here. It is a club that I am very grateful to and this shows my happiness here. I will work much harder to repay the belief shown in me.”
The new deal will put an end to speculations linking him to a move to Barcelona where his close friend Neymar is playing and will provide Liverpool manager Jurgen Klopp with a huge boost for the season ahead.
Coutinho has played a major role in Liverpool’s contention to the title, having contributed with six goals so far.