Coady joined the League One outfit on a youth loan in July and has since become a mainstay in the starting XI.
After turning 21 on Tuesday, Coady has now penned a fresh 93-day loan and will stay at Bramall Lane for the remainder of United's fight against relegation.
"Conor has steadily improved throughout his time here and as a young player we are more than pleased with his progress, hence the decision to extend his stay," manager Nigel Clough told the club's official website.
"It was always the intention to keep him here and after his performances in the last few weeks the decision became easy, especially with Liverpool keen for him to gain further experience in our first-team.
"We told him recently that we wanted to see him chipping in with more goals, then he goes and scores against Nottingham Forest and at Gillingham."
Coady has made 32 appearances for United this season, scoring on four occasions.
Clough's side are four points above the League One drop zone following a run of three straight league wins and will meet Charlton Athletic next month for a place in the FA Cup semi-finals.
