Klopp, who moved to Anfield in 2015, guided Liverpool to Champions League glory in June and they are currently eight points clear at the top of the Premier League.
"For me personally this is a statement of intent, one which is built on my knowledge of what we as a partnership have achieved so far and what is still there for us to achieve," the 52-year-old Klopp said in a statement on Liverpool's official website.
"When I see the development of the club and the collaborative work that continues to take place, I feel my contribution can only grow."
During his first campaign at Anfield, Liverpool reached the finals of both the League Cup and Europa League but lost both.
They lost 3-1 to Real Madrid in the 2018 Champions League final but regrouped and became European champions for a sixth time after a 2-0 win against Tottenham in Madrid this year.
Liverpool lost just one match in the Premier League last season, racking up 97 points -- the best in the club's history -- but missed out on the title by a solitary point to Manchester City.
So far this season, Klopp has overseen Liverpool's surge to the top of the Premier League, where they currently sit eight points clear after 15 wins from their opening 16 matches.
They have not won the English top-flight title since 1990.