Kennedy made more than 300 appearances and scored 72 goals between 1974 and 1981 in a glittering career for Liverpool. He helped them win five First Division titles, three European Cups, the UEFA Cup and the League Cup among other major honours.
Kennedy was initially brought in as a forward at Liverpool but was transformed into a midfielder by manager Bob Paisley.
"Liverpool is mourning legendary former player Ray Kennedy, who has passed away at the age of 70," Liverpool said in a statement on their website.
"The latter period of Kennedy's career, and indeed the rest of his life, was affected by Parkinson's disease."
Paisley wrote in his autobiography that Kennedy was "one of Liverpool's greatest players and probably the most underrated."
Kennedy also spent five trophy-laden seasons at Arsenal, lifting the FA Cup and First Division championship in the 1971 double season when his late header snatched a 1–0 victory at North London rivals Tottenham Hotspur to seal the title.
He made 17 appearances for England, scoring three goals, and played at the 1980 European Championship in Italy.