The 18-year-old Spaniard, who joined Liverpool from hometown club Cadiz in 2010, committed his future to the Reds when he put pen to paper on the new deal at the side's training complex at Melwood.
After signing the contract, Suso told Liverpoolfc.com: "I am really happy. Liverpool are one of the biggest clubs in the world and this is the right place for me."
Suso was given his senior debut for Liverpool in the Europa League win over Young Boys last month after impressing in the youth ranks and the reserve side.
"I am happy Brendan has shown trust in me," Suso said. "I had no questions about signing a new deal and I am really glad to have done so.
"I am comfortable here. I have played some games for the first team and I hope to continue doing that, but I need to work hard every day for that to happen.
"This is one of the best days of my life."
Since his debut, the teenager has made four further appearances for the first team, and Reds boss Brendan Rodgers believes he has all of the qualities needed to develop into a top class player at Anfield.
Rodgers said: "We are all delighted Suso has committed his long-term future to Liverpool Football Club.
"At 18, he has demonstrated outstanding technical qualities but also shown very good temperament to play for such a prestigious club.
"His commitment is very good news for all our young Academy players and the excellent work taken place by the Academy coaches and staff."