The Blues had been in negotiations with Brighton throughout the summer and saw a flurry of offers turned down by the Seagulls.
Chelsea believed they had a deal within their reach after receiving the go-ahead from the young midfielder.
But the Merseysiders have thrown a spanner in the works with a late move, outbidding Chelsea with a lucrative offer.
As reported by The Athletic, the Reds made an offer worth £110 million, exceeding Chelsea’s £100m.
Having finalised the deal with the Seagulls, the Merseysiders are now working on personal terms with the Ecuadorian international, although it is understood to be only a formality.
Caicedo’s move to Anfield could allow Chelsea to go after Southampton midfielder Romeo Lavia.
Lavia has also been a target for the Merseysiders, but the Blues are in pole position to sign him after recently submitting an offer worth €48m to the Saints.
The £110m deal for Caicedo would break the Reds’ club-record transfer.
Caicedo’s acquisition will likely complete the midfield overhaul at Liverpool, who have already invested in Alexis Mac Allister and Dominic Szoboszlai this summer.
Thiago Alcantara could follow Jordan Henderson, Fabinho, Alex-Oxlade Chamberlain and Naby Keita to the exit door, with Al-Ahli interested in signing him.
Klopp’s men will lock horns with Chelsea this Sunday in their opening game of the 2023/24 Premier League campaign.
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