Reds boss Brendan Rodgers revealed at a press conference on Friday he was expecting the 22-year-old to sign a new contract soon. And on Friday afternoon Kelly, currently sidelined with a cruciate knee ligament injury, put pen to paper on a new deal at Anfield.
The day after fellow defender Jamie Carragher announced his retirement at the end of the season, Rodgers was pleased to see another local lad commit his future to the club. And he said: "He is a young player who really impressed me when I came in. He was exceptionally good in the games he played earlier in the season."
The player, who injured his knee in the 2-1 home defeat against Manchester United in September, told his club's official website: "I'm delighted to sign. It means everything to me and my family.
"I've been at Liverpool since I was seven, so it's in my heart and I love the club. When you play in the Liverpool shirt, you have to show the fans what it means. I just love playing and trying my hardest for the supporters and for my family."
Kelly, who has made 54 appearances for Liverpool since making his debut in 2009, added: "Being a Liverpool supporter myself, it's brilliant to put the shirt on. I'm doing what I have loved doing since I was a kid. I'm over the moon.
"Today shows the faith that the club have in me and that the hard work I have put in since I was young has paid off. Hopefully I'll put the injuries behind me. We have excellent medical staff here, who are going to work me and keep me on top of my injury. I'll be coming back even stronger."
Liverpool managing director Ian Ayre added: "It's fantastic news and it runs on from various other players who have committed to us.
"I think everybody has been starting to see and enjoy Martin's potential and the work he has showed to get into the first team and these are the things we are looking for.
"He was very unfortunate to get his injury but he has worked very hard with the physios and the medical team and hopefully we'll see him back soon. Signing him up for the long term is very important for us."
Meanwhile, Rodgers admits he has an impossible task trying to find someone to fill the void which will be left by the "irreplaceable" Jamie Carragher.
Rodgers has only recently brought the former England international back into the heart of the defence at the expense of Martin Skrtel after concerns a lack of leadership was being exposed.
The Reds boss claims Carragher was thinking about quitting last summer but was persuaded to carry on. Now the Northern Irishman has just a few months to find alternatives to the man he called a Liverpool icon.
"He has been a giant for me since I came in here, an incredible man, he is one of a dying breed," he said.
"He is someone who has good real old school values and ethics but, as you can see from his last two performances, he still has the qualities to play at this level.
"He is a real iconic player for this club and, for me, one which will be irreplaceable. I don't think he can be replaced. I genuinely think he is a player who I would call a pure defender.
"You see a lot of rash defending nowadays but he defends with great intelligence, he knows when to mark a man and when to mark space and understands the basic principles of defending.
"He is an outstanding leader and organiser in the team and to find someone with all those capabilities and has the heart the size of a lion is very difficult.
"That type you won't find but you have to look for other types with other qualities and that is something we will have to do."