The right-back, who is expected to join Real Madrid on a free transfer, said the decision was down to wanting a "new challenge" as he ends a two-decade association with his hometown side.
"After 20 years at Liverpool Football Club, now is the time for me to confirm that I will be leaving at the end of the season," Alexander-Arnold said in a statement on Monday.
"This is easily the hardest decision I've ever made in my life.
Alexander-Arnold, who came through Liverpool's academy, had been part of a Reds trio with Mohamed Salah and Virgil van Dijk, whose contracts would be expiring in the summer.
Both Salah and Van Dijk committed their futures with the Premier League champions, and while discussions were open with Alexander-Arnold, his exit from the club now looms.
He continued: "I know many of you have wondered why or been frustrated that I haven't spoken about this yet, but it was always my intention to keep my full focus on the team's best interests, which was securing No. 20.
"This club has been my whole life - my whole world - for 20 years. From the Academy right through until now, the support and love I have felt from everyone inside and outside of the club will stay with me forever. I will forever be in debt to you all.
"But, I have never known anything else, and this decision is about experiencing a new challenge, taking myself out of my comfort zone and pushing myself both professionally and personally.
"I've given my all every single day I've been at this club, and I hope you feel like I've given back to you during my time here."
Alexander-Arnold came through Liverpool's academy and has gone on to make 352 appearances for the first team since his senior debut in October 2016.
The 26-year-old has crafted a glittering resume, helping Liverpool win the two Premier League titles, the Champions League, UEFA Super Cup and Club World Cup, also lifting two League Cups, the FA Cup and the Community Shield.
"From the bottom of my heart, I thank everybody – my coaches, my managers, my teammates, the staff and our incredible supporters - for the last 20 years.
"I've been blessed enough to live out my dreams here, and I will never, ever take for granted the special moments I've been fortunate enough to have lived through with you all. My love for this club will never die."
While a deal to join Real Madrid has not been formalised as of yet for Alexander-Arnold, their admiration in signing him has been evident long-term.
Real emerged as the likeliest destination for Alexander-Arnold with the Spanish giants making an approach to sign him before this season's January transfer window.
The offer was rebuffed by Liverpool, who were focused on securing their second Premier League title, which they clinched at the end of last month.