Liverpool managing director Ian Ayre has confirmed that the club intend to redevelop Anfield rather than building a new stadium in Stanley Park.
Ayre made the announcement at Liverpool Town Hall, with the city's local authority revealing plans to regenerate the area around the stadium.
Liverpool City Council has secured a £25 million grant from the government for the Anfield Village project, with the Your Housing housing association also set to invest.
The council plans to demolish a number of houmes near Anfield as part of the development, using compulsory purchase orders where necessary, which will create space for the expansion of the stadium.
"Today represents a huge step forward for the Anfield area," Ayre said. "Everyone at the football club knows the importance of today.
"We welcome the opportunity to be part of this partnership. We want to thank Joe Anderson [the Mayor of Liverpool] and the council for the time and the support they've given us to help make the right decision.
"Liverpool celebrated its 120th year in 2012 at Anfield, and there is no doubt Anfield is the spiritual home of the club - our preference was always to remain at Anfield.
"This is a major step forward for the football club but also, more importantly, the residents. It is step one as there is land to acquire and plans to be approved, but this is a significant moment.
"Questions about capacity and cost are not for today - not until we have certainty."
Ayre, who also indicated that the blueprint for redeveloping the ground was likely to include extending the Anfield Road and main stands, made the announcement on the second anniversary of Fenway Sports Group's takeover of Liverpool.
Principal owner John W Henry has hinted strongly in the past that he wanted to keep the club at Anfield, despite the fact that the club have had plans to build a new stadium on neighbouring Stanley Park since 2000.
In June, Henry said he felt it was a "myth" that the club needed to move to a new ground in order to enhance their financial prospects.
The cost of redeveloping Anfield has been estimated at around £150 million, roughly half what it would have cost to build on Stanley Park.
Ayre has always maintained that, even with a naming rights deal, moving did not make financial sense, which is why Henry has always preferred the idea of staying put.
The managing director told Liverpool's website: "I think we would all hope to do it [redeveloping the ground] as soon as possible, but there are determining factors we don't know the answer to yet.
"The acquisition of land and property and the planning processes are exactly that - processes - and they are undeterminable at this stage. We start that in earnest today, so it's too early to say the time or the dates.
"As we unfold the plan and as the plan develops, we will use all the normal channels to let our fans know and keep them informed. We are all excited about it, and hopefully it's a great opportunity for the club."
Meanwhile, Liverpool skipper Steven Gerrard has given his backing to the club's decision to redevelop Anfield.
He said: "I'm really pleased. I've had some special occasions at Anfield and so have the club. If they are going to spend all that money on Anfield and improve it then fantastic. I'm very happy at that news.
"It is major news for the club. It has been on everyone's lips for a number of years now, would we move away from Anfield or reinvent Anfield?
"I've been like everyone, waiting for the verdict on that, and it looks like it is going to be Anfield which is great. A lot of history and important things have happened at Anfield and I think it is fantastic Liverpool are staying there.''