The versatile defender was in the final months of his deal on Merseyside, having endured a nightmare spell on the sidelines with a knee injury.
But having impressed Jurgen Klopp on his return, Flanagan has extended his terms, believed to keep him at the club until the end of the 2018/19 campaign.
This marks another step in the progress made by Flanagan since his initial layoff in March 2014.
The Liverpool-born defender, at his best on the right defensive flank, played a key role in the Reds’ unexpected title challenge in 2013/14, fielded regularly at left-back by Brendan Rodgers.
Handed a one-year deal last summer, Flanagan was allowed to continue his recovery at the club’s Melwood training facility.
But having returned to make five first-team appearances so far this season, including wins over Manchester City and Crystal Palace in the Premier League, Flanagan has proved his quality to Klopp.
Flanagan was omitted from Klopp’s 25-man Europa League squad for the initial knockout stages—a decision the German later admitted was a mistake.
This move gives Flanagan a further opportunity to establish himself as a “one-club man,” as he outlined at the beginning of March.
However, supporters should not expect fireworks from the young defender as 2015/16 reaches its conclusion, as Klopp has been keen to stress the importance of continuing to manage his fitness.
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