The 35-year-old, who joined the five-times European champions at the age of nine and made his first team debut in 1997, is no longer an automatic starter and his appearances have become increasingly infrequent this season.
IN THE NEW FFT:In conversation with Carragher and Gerrard, in the March issue out now
"This will be my last season at Liverpool and my last as a professional footballer," said Carragher who won 38 England caps.
"I'm making this announcement now because I don't want the manager or the club to be answering questions on my future when I've already decided what I am going to do," he told the club website.
"I will be fully committed between now and the end of the season to doing the very best... as I've done my entire career."
Carragher, second behind Ian Callaghan in the club's all-time appearance list, has won a string of honours in his 17 seasons at the club and played a starring role in the astonishing 2005 Champions League final win over AC Milan.
Liverpool clawed their way back from a 3-0 deficit and Carragher was at the heart of a stirring backs-to-the-wall defensive display before his team triumphed in the final on penalties.
This season has been mainly spent behind centre backs Martin Skrtel and Daniel Agger in the pecking order at Anfield.
Carragher has won his place back in recent weeks though and was impressive in the away draws at Arsenal and Manchester City.
"It has been a privilege and an honour to represent this great club for as long as I have and I am immensely proud to have done so and thankful for all the support I have had," he said.
"There are many memories I want to share and people to thank but now is not the time for that."
Liverpool manager Brendan Rodgers paid tribute to the defender but said he still had a significant role to play as the club looks to climb the Premier League table and continue in the Europa League.
"Jamie has been absolutely outstanding for me since I joined the club. He has been a model professional on and off the pitch and has shown an unswerving commitment to our work," Rodgers said.
"I know his commitment and dedication on the pitch will remain as it has done his entire career at Liverpool.
"Jamie's focus is always on doing what is best for the team and he has said he doesn't want any distractions while there are still important matches to be played and won.
"But when the time is right we, as a team and a club, will give the man the tribute and recognition he deserves; I know the supporters will want to say thank you to someone who has served them with such distinction for so long."
