Liverpool manager Rafael Benitez has confirmed that talks have begun about extending his contract with the club.

The new deal, worth about £10m, will effectively extend his stay on Merseyside by one year to 2010.

According to reports in Spain the 45-year-old has already signed a one-year extension to his current deal, which runs until 2009.

But Benitez, who has been linked with the coaching jobs at Real Madrid and Inter, said: “We know that I am happy here and we are talking.

“It is not a problem because the relationship is really good.”

Real seemed the most likely move for Benitez given that Benitez began his career at the club. Indeed a poll conducted in the Spanish newspaper Marca confirmed that 34% of Real fans favoured a move for the former Valencia coach, with Fabio Capello second on 31%.

It is understood that the newly appointed Real president Fernando Martin has identified Benitez as the man to restore the club’s fortunes and was prepared to back the new coach with a significant transfer budget.

Speaking after his side’s 5-1 victory over Fulham, Benitez added: “My relationship with the fans is excellent, as is my relationship with the board.

“We are happy, I am happy and there is not a problem at all with our relationships.

“But the only thing I have been signing tonight has been autographs.”

Benitez joined Anfield in summer 2004 and led the club to the Champions League at the end of his first season.

But it seemed he was becoming increasingly frustrated at not being able to compete for players at the top end of the transfer market.

Liverpool’s departure from the Champions League at the last 16 stage and their indifferent form in the Premiership served to intensify rumours he may have been prepared to join Real.

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