Murphy said: "As his room-mate as well as his team-mate, I am more thrilled than anybody that he has decided to stay at Liverpool.
"For me, Stevie epitomises everything that Liverpool FC is about and while many people seemed to have resigned themselves to the fact that he was leaving, he never once came out and declared that to be the case.
"I count Steve as a close pal. I have spoken to him throughout the summer and as he admitted on Monday, he has been tempted. But that doesn't mean there was ever a time when he felt he was definitely on his way.
"Normally Steve is very laid-back and very easy going. But the last few weeks have been very difficult for him and I am delighted he has come to the right decision for himself.
"He is our captain, one of our most influential players and someone the fans relate to because of his roots and his style of play.
"I suppose it is very unusual in modern football for a player to make a decision not based on financial rewards, but that's the kind of lad he is and anyone who knows him won't be surprised.
"Steve is ambitious for honours - and it's good for Liverpool that he feels he can win them at Anfield. I'm delighted personally and delighted for the club."