The Republic of Ireland full-back has agreed the terms of the deal and is expected to sign when the Reds squad return from their pre-season tour of Asia.
Finnan, 31, was signed from Fulham by former boss Gerard Houllier for £3.5million four years ago but has remained a first choice under the Frenchman's successor Rafael Benitez.
He has gone on to play 182 games for the Anfield club and was part of the teams that won the Champions League in 2005 and FA Cup a year later.
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