Kenny Dalglish has signed a new three-year contract as Liverpool manager.
The 60-year-old Scot has been rewarded with an extended deal after taking over in January in a caretaker role following Roy Hodgson's sacking.
"I'm obviously delighted to be given the opportunity," Dalglish told the club website.
"When we came back in January, there were no promises as to what to expect, so for me it was an ideal opportunity to prove I had something to offer."
The former Scotland striker, who famously graced the club as a player in the 1970s and 80s, became player-manager at Anfield in 1985 following the retirement of Joe Fagan, winning the league and FA Cup double in his first season at the helm.
He played until 1990, aged 39, but resigned as manager the following year, requesting a complete break from football.
That break lasted only a few months. He took over at Blackburn Rovers, guiding them into the Premier League in 1992 and winning the title in 1995.
Dalglish also had less successful spells at Newcastle United from 1997-98 and Celtic from 1999-2000.
Having returned to Anfield as a club ambassador in 2009, Dalglish was a hugely popular choice with supporters to replace Hodgson and has overseen a dramatic improvement in results.
The Merseysiders have climbed from 12th to fifth in the Premier League table, boosted by Dalglish's influence and the signings of Uruguayan forward Luis Suarez and striker Andy Carroll following the £50m sale of Fernando Torres to Chelsea.
"We are delighted it has gone as well as it has done," said Dalglish. "[Coach] Steve Clarke is as important as I am to the club - we came in as a partnership and he has made a great contribution.
"For it to go so well has really been enjoyable for us. There might have been some people who were saying three or four weeks ago why is [the contract signing] not happening but we were still going about our job.
"There has never been any problem with discussions or the timing. There was no need for anyone to dive in and make rash decisions.
"The fact it has only happened now does not take away from our devotion or dedication to get results.
"The place is much more stable now than it was before, the supporters have smiles on their faces and it is up to us to keep them there as long as we can.
"But we are not going to sit here and shout our mouth off about what we are going to do."
Negotiations with Dalglish had been ongoing for several weeks before Thursday's announcement. Clarke, who arrived in January, has also signed a three-year contract.
Liverpool skipper Steven Gerrard said: "It is fantastic news and the news everyone connected with the club has been waiting for.
"Kenny has lifted the place, the supporters, the players and everyone connected with the club and now we can all look forward to a bright future.
"With Kenny signing and a few more [player] signings, I am sure expectations will go through the roof but we just need to continue what we have been doing over the last six months."
John Henry, whose US-based Fenway Sports Group owns Liverpool, said Dalglish was the man they wanted for the job.
"Kenny is a legendary Liverpool figure, both as a supremely gifted footballer and successful manager," Henry said in a statement.
"Since returning in January, he has shown extraordinary leadership and the ability to bring the best out of so many people associated with the club.
"It was obvious to us very early on that the atmosphere surrounding the club had been transformed by his presence. No-one else could have produced such a response."
The club's director of football Damien Comolli said: "Kenny turned things around very quickly, with the help of Steve Clarke. For us, it was a no brainer.
"He hit the ground running from day one knowing what he wanted to do because he knew the boys anyway, especially the key players like Steven Gerrard and Jamie Carragher, and knew the young players in the Academy."
Comolli compared Dalglish's impact on Liverpool to the effect Arsene Wenger had on Arsenal.
"They both have a massive ability to give confidence to the team and to the players," said Comolli, who worked with Wenger at the Gunners. "They bring self-belief into the young players by saying 'you are good so that is [why] you are playing'.
"The other thing they say is 'don't do anything to what you have been doing. It doesn't matter that you're at Anfield or the Emirates, just play your normal game. If I pick you it's because you are good enough'."
Liverpool managing director Ian Ayre revealed Dalglish was the only serious contender for the job.
"It was an easy decision in the sense there was never any other candidate," he said.
"Over the last few months, everybody has had a great opportunity to work together - the owners, Kenny, Damien and myself - and it's there to be seen what Kenny and Steve Clarke have achieved together.
"I think we are most pleased for the fans. Bill Shankly once said 'Liverpool was made for me and I was made for Liverpool', and although it's not very often you can compare anything about Shankly with anyone else, I think in this case it is befitting of Kenny."