Rafa Benitez has rejected an opening round new contract offer from Liverpool.

The News of the World says Benitez has rejected Liverpool's opening £12million contract offer.

The Anfield boss is holding out for improved terms after the club's owners put a two-year extension to the Spanish coach.

The new deal, planned to last until 2012, would have seen his salary rise from his current £3.5m-a-year to just under £4m for the rest of his stay on Merseyside.

But Benitez wants his pay to be in line with his top four rivals - both Arsenal's Arsene Wenger and Manchester United's Sir Alex Ferguson earn £4.5m-a-year.

Talks will continue as Benitez seeks a swift solution, but it is his salary that is the main stumbling block.