Markus Babbel has joined Stuttgart as new Liverpool boss Rafael Benitez aims to trim his wage bill.
"We've reached agreement," Stuttgart manager Jochen Scheider confirmed after Babbel completed a successful medical.
The German defender fell out of favour with Gerard Houllier after spending a year on the sidelines through illness, then Benitez agreed to let him go.
Former international Babbel, 31, spent a year on loan with Blackburn but was keen to rebuild his Liverpool career.
The club have settled on a pay-off for the defender, who joined from Bayern Munich in 2000.
Babbel will fly to Going, Austria on Monday where the team are currently preparing for the upcoming Bundesliga season which starts on 6 August.
Babbel said: "I didn't want to play for another English club because
Liverpool is so special and going anywhere else would not be the same.
"For this reason I feel it's best to go back to my own country and play for a
good club like Stuttgart."
The former Germany international scored six goals in 73 appearances for Liverpool following his 2000 move from Bayern Munich.
He battled back from a debilitating illness which threatened his
career and ruled him out for most of the 2001-2 campaign.