"This is very good news for us. As I've said many times, we are preparing for the future and we want Finnan to be part of that. He is one of the players that form the spine of the team and him agreeing to sign has to be good, not just for the present but the future also," the Liverpool boss told the club's official website.
"Steve is a quality player with consistency perhaps being his greatest quality. He always plays at a very good level. It's not very often that you see him have a bad game. He's a player you can always rely on and, to be fair, it's been that way since I came.
"From training with him every day, you can see just what a clever player Steve is and his form throughout the last three years has not surprised me. From day one he was eager to learn and very receptive to our ideas. I always knew he would be a good player for us.
"He's one of our more experienced players now but I still expect him to improve with age because he'll then be able to analyse the game in more ways and that will be another major positive."