The Argentina midfielder has been at Anfield since ending a brief stint at West Ham and until Friday was on a long-term loan deal from owners MSI.
"I am very, very happy and now I can concentrate just on playing football," Mascherano told Liverpoolfc.tv.
"I said all along that I wanted to stay at Liverpool and now that I have signed I can say this is the best and the biggest moment in my career so far.
"From the first day I arrived at Liverpool the feeling was good and I knew this was where I wanted to play my football.
"It's good news for me and my family that everything is sorted and I know where my future is going to be. I just want to do my best for the fans and the people of the club.
"I am at a top side and I know I can win titles here. That's the big thing for me. I want to be at a club where we can win trophies and have success."
Manager Rafael Benitez was just as delighted to secure the services of the 23-year-old midfielder.
"We must be really pleased with the situation now," said the boss.
"He has been a key player for us since he has been here and now we know he can be a key player in our future.
"From the start we knew Javier was a player with quality and a fantastic mentality. We knew the player when he was in the reserves at River Plate but was playing for the senior national team and we had been monitoring his career since then.
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