Litmanen has been unhappy with the limited amount of first-team action he has had at Anfield.

And the Finland international's agent Harri Kampman confirmed the deal when he said: "This was agreed late on Thursday night.

"The most important thing is that Jari gets back to a familiar and safe environment, and hopefully will get playing time. The club and the player know each other perfectly."

Reds boss Gerard Houllier said earlier this week he wanted the player to stay - despite granting Turkish club Galatasaray permission to speak with the Finn.

And Liverpool assistant manager Phil Thompson said: "The deal for Jari has gone through and it's a bit of a sad one.

"Liverpool was always his first love as a kid, but I think if you were to ask him which has always been his team it would be Ajax.

"I believe they still chant his name now, so there has always been a love affair there and the lure of Ajax was too much to resist.

"His chances of a regular place in the Liverpool side were always going to be difficult, so I think he sees himself getting that at Ajax."

Ajax coach Leo Beenhakker told told Dutch radio station Langs de Lijn: "He will sign for one year and after that it is our intention and his intention to add another year and a half to it."

The 31-year-old, who joined Liverpool from Barcelona last year, ended a six-year stay with Ajax when he moved to the Nou Camp in 1999.

It is believed the Finnish playmaker is hoping to end his career in Amsterdam and then take charge of one of the club's youth teams.