The Brazil international's existing deal didn't run out until 2018 - having only renewed terms in February 2015 - but the Reds were keen to reward Coutinho's exceptional progress since then by increasing his wages to a reported £150,000-a-week.
The 24-year-old's new-and-improved deal pens his future on Merseyside until 2022, with the new terms not officially coming into effect until July 1st 2017.
Coutinho, who has scored 34 goals in 163 appearances for Liverpool since an £8.5 million move from Inter Milan in January 2013, is on higher wages than any of his team-mates - reflecting his massive importance and impact within the squad.
New deal reflects Coutinho's influence at the club
The attacking midfielder has scored six goals and laid on five assists already this season - his sensational form only disrupted by an ankle injury sustained at the end of November, which has kept him out for almost two months since.
His performances this season have even led to heavy links with La Liga giants Barcelona, but Liverpool have ensured there is no release clause in his new contract to prevent themselves getting stung.
In the summer of 2014, Liverpool were forced into doing business with Barcelona for the £75 million departure of talismanic striker Luis Suarez after they activated a release clause only entered into the new contract he signed seven months prior.
Liverpool will hope that preventing the insertion of one for Coutinho means that should any clubs look to make an offer, they remain in a strong position to hold out for a fee that matches their valuation - if indeed they agree to sell at all.
That situation is not likely to come any time in the near future however, with manager Jürgen Klopp having dismissed speculation about the Brazilian's future back in November.
The German boss said: "My feeling and my opinion is that he feels really well here. We all hope and think his future is here in Liverpool."
Double boost with Coutinho expected to face Southampton
Rumours about Coutinho's new contract only surfaced on Tuesday, with talks between the club's sporting director Michael Edwards and the player's representatives - including agent Kia Joorabchian - said to be going well.
But with the diminutive playmaker having penned his new deal so soon after the news first emerged, it is likely talks had been completed some time ago - with Liverpool potentially delaying the news until the best time.
It comes as a huge boost ahead ahead of a crucial EFL Cup semi-final second-leg clash with Southampton at Anfield on Wednesday night.
The Reds are looking to overturn a 1-0 deficit to reach a second Wembley final in as many seasons, but also to bounce back from the weekend's league defeat to Swansea City - one which ended their year-long unbeaten home run and hugely dented their title ambitions.
In further positive news, Coutinho is also expected to be in the squad for the visit of the Saints.
The Reds' No.10 had missed seven weeks with ankle ligament damage before his return earlier this month and his absence at Melwood sparked fears he was set for another period on the sidelines.
But he participated in Tuesday's session with the rest of the Liverpool squad and is expected to line up against Claude Puel's side, dependent on how he comes through a final preparation session earlier on Wednesday.