Liverpool chiefs did not specify the precise length of the Brazilian international forward's latest deal, but it was widely reported in the British media to be a five-year contract.
The news comes a huge boost for Jurgen Klopp's men ahead of next week's Champions League semi-final second leg away to Roma, where the Reds will kick off 5-2 in front with Firmino having scored two goals in their stunning first-leg win at Anfield.
"It was an easy decision," Firmino told Liverpool's website. "The club have taken me in in an incredible way and I've grown a lot here with my work with the support of the whole team. I am very, very happy here."
The 26-year-old joined Liverpool from German side Hoffenheim before the start of the 2015/16 season and has since scored 50 goals in 140 appearances for the five-times European champions.
The current campaign has been his best yet for the Merseyside club, with 27 goals in 50 fixtures.
According to the Football Leaks website, Firmino had a 98 million euro buyout clause in his previous contract which ran till 2020.
However, given the rampant inflation in transfer fees over the past year following Firmino's international team-mate Neymar's 222 million euro move to Barcelona, that price tag was unlikely to put off potential suitors, upping the pressure on Liverpool to agree a new deal increasing or removing that clause from his contract.
On top of his own goal contribution, Firmino has played a vital role in a prolific three-man forward line also featuring Mohamed Salah and Sadio Mane, which has combined for 88 goals this season.
"Everything fits in the best possible way," Firmino added. "My team-mates are fantastic and I am very grateful to be able to play with them at this club.
"I love to play for Liverpool FC. The fans are excellent and fantastic in how they support us all the way. They support us throughout the games and the work they do during the match is beautiful."