"This has been the toughest decision of my life and one which both me and my family have agonized over for a good deal of time," Gerrard, who has played 695 times for Liverpool, told the club's website.
"I am making the announcement now so that the manager and the team are not distracted by stories or speculation about my future."
"I'm going to carry on playing and although I can't confirm at this stage where that will be, I can say it will be somewhere that means I won't be playing for a competing club and will not therefore be lining up against Liverpool -- that is something I could never contemplate."
Tributes from fellow professionals have poured in.
Liverpool teammate Kolo Toure told CNN: "It has been an honor and it is still an honor for me to play with this amazing man. He is a top professional and a true legend."
Former teammates for both club and country also took to Twitter to praise the midfielder.
Michael Owen said: "Hard for the Steven Gerrard news to sink in. Amazing servant to Liverpool, arguably the best of all time," while Jamie Carragher tweeted: "Sad day for Lfc & English football with the Gerrard news. I think its the right decision all things considered."
The 34-year-old made his first-team debut for the Reds in November 1998 and has scored 180 goals to date in all competitions.
Gerrard, who also represented England 114 times before retiring in July, won eight trophies with the club including two FA Cups, three League Cups and the UEFA Cup in 2001.
His greatest achievement came in 2005 when he captained Liverpool to victory in the Champions League final against AC Milan in Istanbul.
Gerrard won the Man of the Match award as Rafa Benitez's side overturned a three-goal deficit to eventually win a dramatic match in a penalty shoot-out. It was Gerrard's looping headed goal early in the second half that sparked Liverpool's remarkable recovery.
However, his long-cherished desire to win the Premier League never materialized -- Liverpool came close in 2009 finishing second to Manchester United and last season Brendan Rodgers' side were pipped to the post by Manchester City.
Even more distressingly Gerrard's mistake in the 2-0 home defeat by Chelsea near the end of the season gifted the visitors their first goal -- an error opposition supporters continue to remind the Liverpool captain about in a song during games.
A 19th League title in his final season, and a first for the club in a quarter of century, looks improbable -- the Merseysiders are currently in eighth place in the table, 17 points off top spot.
Gerrard reasserted his commitment to the team for the rest of the season and hasn't ruled out a return to Anfield in the future.
"It is a very special place to be part of. It is my sincere hope and wish that one day I can return to serve Liverpool again, in whatever capacity best helps the club," he said.
Gerrard also paid tribute to Rodgers, the owners, his teammates and backroom staff, but reserved his most heartfelt thanks to the club's loyal supporters.
"My final message is for the people who make Liverpool Football Club the greatest in the world -- the supporters.
"It has been a privilege to represent you, as a player and as captain. I have cherished every second of it and it is my sincere wish to finish this season and my Liverpool career on a high."