The Reds will meet Championship club Cardiff City in their first Cup final at Wembley Stadium since the 1996 FA Cup with the date for the decider set for Sunday, February 26.
It was a scintillating match at Anfield this evening with Kenny Dalglish's men dominating proceedings by forcing City keeper Joe Hart into no less than 10 saves but they found it difficult to put their dominance onto the scoreboard with the visitors taking the lead on two occasions.
Nigel de Jong produced an absolutely magnificent opener for City just after the half-hour mark when he was teed up by David Silva and managed to put the ball into Pepe Reina's top left corner with a perfect curling shot from 25 yards which he mustered despite slipping under pressure from Steven Gerrard.
Less than ten minutes later, Liverpool were awarded a lucky penalty when Daniel Agger's shot deflected off Micah Richards' leg and into his outstretched arm with Gerrard stepping up to the spot and smashing it past his England teammate Hart.
Liverpool had done all the attacking and were unlucky not to go ahead with a host of chances but just over 20 minutes from time, they found themselves behind when Aleksandar Kolarov sent in an inch-perfect cross from the left to the back post for Edin Dzeko to finish with a simple tap-in.
There was a further twist in the 74th minute when Craig Bellamy put the Reds ahead on aggregate when he slotted home past Hart with his left foot from 12 yards after a crisp one-two with Glen Johnson which was enough to send the Merseysiders into the decider.
Bellamy was able to score against his former club to put his current club into the final against the side he spent time on loan with last season in what was a massive occasion for the Cardiff-born Welshman.
Dalglish, who guided a deserved Reds side through, now gets the chance to add to the four league cups he won for Liverpool between 1980 and 1984 as he goes about restoring the glory days at Anfield as Roberto Mancini misses out on adding to last season's FA Cup trophy.