It was not immediately clear how long the deal was for, 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 that 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."
Liverpool did not specify the length of Suarez's new deal but it is expected to make the 26-year-old striker the best-paid player in the club's history.
Suarez's spell at Anfield has often been a controversial one 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.
Suarez added: "We have some great players and the team is growing and improving all the time. I believe I can achieve the ambitions of winning trophies and playing at the very highest level with Liverpool. My aim is to help get us there as quickly as possible."
Liverpool manager Brendan Rodgers said: "This is fantastic news for everyone associated with the club; the team, the owners and most importantly the supporters.
"Luis is a world-class talent and securing his services is crucial for what we are trying to achieve here.
"What's most important and most exciting is that, at just 26 years old, his best years are still ahead of him and we now know we'll be seeing him reach that potential in a Liverpool shirt."
Liverpool had to fend off interest from Arsenal in the summer, who had a bid of £40,000,001 rejected, but their determination to keep Suarez has paid off with the Reds now second in the Premier League with the Uruguayan the leading scorer in the top flight with 17 goals, four ahead of his nearest rival.
The club's principal owner John W Henry said: "We are committed to working hard to keep our best players and this is an indication that we are moving in the right direction and moving at a pace that impresses one of the best players in world football.
"The club has made major strides forward in recent years and we are all committed to delivering the success our supporters want and deserve."
Liverpool chairman Tom Werner added: "This demonstrates our commitment, as an ownership group, to building a team that competes at the highest level both in the Barclays Premier League and in Europe.
"Our primary motive is to do what is best for Liverpool Football Club and today's news is another significant step forward on this journey."
'All this has done has kept Luis sweet' - Liverpool fans give their views on Suarez's new contract
So Luis Suarez has signed a new, big-money contract at Anfield. As recently as August he was desperately trying to leave the club, but it seems all has now been forgiven. And why not? The Uruguay striker has been winning over Liverpool fans and neutrals alike with some staggering displays for his club this season.
Despite missing the first five games of the season through suspension (for biting Branislav Ivanovic, in case you've forgotten), he is the Premier League's top goalscorer with 17 goals from just 11 games.
Liverpool did not release many details of the new contract, but they did say it was "long-term". So Suarez is staying, right?
Not necessarily. Some suggest this new deal is merely keeping Suarez happy for the short-term, and ensuring a massive transfer fee should one of Europe's richest clubs enter the picture at the end of the season.
We've collected the thoughts of two Liverpool fans, and of Goal readers in general, to see just what this bumper contract means.
Is Suarez's new contract necessarily good news for Liverpool?
YES
Naazim Macci: The news of Luis Suarez signing a new long-term deal at Liverpool brings huge excitement to all the fans. The player is world class and has shown great hunger to be the best and a new deal is nothing short of what he deserves.
The new contract makes him the highest-paid players in the club's history, which again showing the club's loyalty to the player.
NO
Rajni Pindolia says: Even though I'm an avid Liverpool fan, the news of him signing a new contract doesn't necessarily mean he will stay over the next few years.
In my opinion all this has done has kept Luis sweet by rewarding him an increase in his wages.
This time his new contract will certainly have a buy-out clause. Luis was under the impression he already had one when Arsenal were sniffing about, but this time he would have made sure a concrete price has been set and, should he want out, all a team would have to do is offer the set amount for his services.
Both club and player will benefit from this deal as it ensures that Liverpool can hold on to their star performer - if we continue to match his ambition in the Premier League.
If this is not the case and we don't finish in the top four he will only leave for a figure which I can only imagine would be something above the £60m mark.
MAYBE
Goal ran a poll on Friday asking readers if Suarez's new deal meant the controversial Uruguayan would be sticking around at Anfield for the long-term. In a nice contrast two our two Liverpool fans, it seems you cannot make your minds up.
While 27.5 per cent of you say this has put an end to question marks over his future, and 17.1% say the contract means nothing and he will definitely leave this summer, the majority are not entirely sure.
The prevailing view, with 55.4% of the votes, is that Suarez's future now depends on where Liverpool finish this season; if they finish in the top four then the Uruguayan will be staying.
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