36-year-old Milner joined the club in 2015 after leaving Manchester City. Since then, he has appeared 289 times for the Reds, helping them win six major trophies, including the League Cup, Premier League, Champions League, and FA Cup.
Reports say that the deal with Liverpool comes with significantly reduced terms just so he can stay at Anfield.
“I’m very pleased to be staying for another season,” Milner said.
“I have never taken playing for this club for granted and I never will.”
With his Liverpool contract ending, Milner received offers from a number of other clubs but decided instead to stay with the club through to summer 2023.
Jurgen Klopp, Liverpool boss, was the driving force behind keeping Milner who wanted to keep him in because of his versatility and influence on the club.
“An overriding feeling for me - and a vitally important one in the process - was the belief I can still contribute to the team. The gaffer was clear what he thought and that was a big factor in me extending my contract,” Milner said.
His career now extends two decades, after he made his Premier League debut in 2002 at just 16 years old.
He is no longer a regular starter but last season, he appeared 24 times. “Last season was extraordinary, even though it didn’t have the ending we hoped it would - but I think that will only make us all even hungrier for more success,” he said.