The 19-year-old Scotland Under-19 international, a product of the Tigers' youth system, made his first-team debut for his hometown club in 2008 at the age of 16 and celebrated his 17th birthday by penning his first professional deal.
Cooper was given his maiden Premier League start against Liverpool at Anfield in September 2009 and last season spent a spell on loan with npower League One side Carlisle.
Town boss Lee Clark told his club's official website: "As well as being a very aggressive boy with excellent reading of the game, Liam brings a bit of extra pace and mobility to the centre-back area and importantly he is left footed.
"We have found it really hard to find a quality left-sided centre-half since I've been here and Peter Clarke has done terrifically on that side but Liam would give us that bit of balance if he forces his way into the side.
"Nigel Pearson [Hull manager] rates him very highly and I understand why. I already had my own thoughts on him following our scouting process and having seen him play against us for Carlisle but his recommendation sealed the deal."