The 18-year-old, who became England's fifth youngest player of all time when he made his senior debut last month in a friendly against Sweden, told the club website that it was a dream come true.
"There's a lot more to be done. I haven't begun yet, as the manager has said. Hopefully I can kick on after the New Year and try to do my best for the team and the football club," said the Jamaican-born player.
The club's managing director Ian Ayre said Liverpool, currently 12th in the league, had secured one of the "country's brightest young talents".
"Since the summer, Luis Suarez, Daniel Agger, Martin Skrtel, Jonjo Shelvey and Suso have all signed new long-term contracts and it's a clear indication of our intent to keep the players we believe are crucial to bringing success on the pitch," he added.
"It also shows the belief the players have in the vision and leadership of Brendan Rodgers and everyone at this football club."
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