The 31-year-old Spaniard, a regular in the Reds' first team until recently, spent last season on loan at Italian club Napoli under former Anfield boss Rafa Benitez.
Reports suggested he was looking to stay in Naples full-time, but the club eventually confirmed they could not afford to keep him, per Sky Sports, and he was widely rumoured to be looking for a move elsewhere:
Napoli boss Rafa Benitez has ruled out signing Pepe Reina on a permanent deal from Liverpool due to his wage demands. http://t.co/Gxov1PQ0dd— Sky Sports Football (@SkyFootball) June 12, 2014
However, with two years still left on his Liverpool contract, agent Manuel Garcia Quillon has confirmed Reina will stay at Anfield, per Sky Sports' Nadia Carminati:
I know rumours are circulating about Reina’s future. But I can confirm that next season Pepe will play for Liverpool. Reina will respect his deal with the English side.
It is a surprise move considering Mignolet is Reds boss Brendan Rodgers' preferred choice between the posts since making the switch to Anfield from Sunderland last summer.
While it will mean great depth for Liverpool at the back, Reina is still likely to play as a back-up keeper per the BBC's John Bennett:
Pepe Reina is outstanding - but at this rate Simon Mignolet could turn out to be one of the signings of the season. Great goalkeeper. #LFC— John Bennett (@JohnBennettBBC) November 23, 2013
However, while Mignolet started well last season, Liverpool conceded 50 goals in the Premier League as they finished second, and the Belgian was certainly not blameless, per Opta:
5 - Simon Mignolet has made more errors leading directly to a goal than any other Premier League player this season. Acclimatize.— OptaJoe (@OptaJoe) February 5, 2014
Reina will provide strong competition to Mignolet, and his decision to stay on Merseyside is potentially an indication that he believes he can wrestle back a first-team spot.
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He will also provide great experience of Champions League football as Liverpool return to the competition next season for the first time since 2009.
His decision to stay, if he sticks to it, is a big boost for the Reds as they head into next season looking to challenge once again in the English top-flight and perform well in Europe.
It means Rodgers can now afford to rotate his shot-stoppers in what will be a fixture-heavy season in 2014-15.
Further depth may also be added to Liverpool's squad with the arrival of young Bayern Munich star Xherdan Shaqiri, with Gary Jones in the Daily Star reporting a deal is nearly complete for the Swiss international.
According to Starsport (via Nick Lustig of the Daily Star), the Reds bid £15 million for the 22-year-old before the start of the World Cup, and it seems a move is almost complete.
His arrival would help ease the blow of losing Luis Suarez, reportedly on his way to Barcelona for £80 million per Simon Jones in the Daily Mail, and his strength and speed make him perfectly suited for both the Premier League and Rodgers' fast-paced counter-attacking style.