The 31-year-old German international's new deal ends speculation he would either move elsewhere in England or return to his homeland. Hamann, who came off the bench to play a major role in Liverpool's Champions League triumph last month including scoring a penalty in the decisive shoot-out, also has an option for a further 12 months up to 2007.
Speaking to the Liverpool Echo, Hamann, who joined the club in 1999 and is currently recovering from a broken toe, said: "Once Liverpool made me an offer, there was only one place I wanted to play my football.
I always said the first club I would speak to about my future was Liverpool because I wanted to stay. The manager said we would wait until after the final before we had a meeting and that's what we did. We came to an agreement instantly."
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