Chamberlain joined the Reds from Arsenal in August 2017 and helped them to final of the UEFA Champions League that season, where they lost 3-1 to Red Madrid, but his season was ended in the semi-finals against Roma through a knee injury that ruled him out of action for a year.
Chamberlain returned to action towards the end of last season, making two substitute appearances along the way as Liverpool were crowned champions of Europe for a sixth time.
The 26-year-old has continued to build up his fitness this term, making three appearances in all competitions thus far, including his first Premier League start since April 2018 against former club Southampton last week.
"I'm really, really excited - it's been in the pipeline for a little while, so it's nice to finally get it done and just extend my time here, which I am really looking forward to," Oxlade-Chamberlain said.
"I feel like I missed out on a year, which I obviously did, so it's really exciting for me to be able to sign. It's something that I feel is an opportunity to give that year back and make up for lost time - and hopefully put in some good performances to make amends for not being around last year."
"You've got to count your blessings every time you get an opportunity like this, you don't get the chance to play for Liverpool Football Club every day. I am really excited to be able to extend my time here."
Chamberlain will hope to feature against another of his former clubs when Liverpool host Arsenal in the Premier League on Saturday.
