The 25-year-old agreed terms on the new deal back in May and has now put pen to paper to give the club the perfect boost ahead of their opening game of the season at Tottenham Hotspur on Sunday.
Torres is now contracted to Liverpool until 2013 with an option to extend the deal by a further year, and will earn £110,000-a-week.
The Spain international joins Liverpool's other star players, along with manager Rafael Benitez, in committing his long-term future to the club.
Benitez said: "Fernando is one of the best strikers in the game and, at his age, can only get better.
"Every major side would want him in their team, but he has shown how much he wants to achieve success at Liverpool by committing his future to the club. He's a special talent, but still has the hunger to improve his game.''
Torres, meanwhile, has insisted Liverpool have nothing to fear from their title rivals, and it is games against sides such as Tottenham which will decide their fate this season.
Much like last season, when Liverpool had an excellent record against the other top four clubs, the Reds are wary of slipping up against other sides in the Premier League.
"We have no problem beating Manchester United or Chelsea, but it is games like Sunday's at Tottenham where we need to show our real title intentions," Torres said.
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