The Reds ended their interest in Monaco winger Thomas Lemar this week, leaving Arsenal with a free shot at the pricey attacker.
Jurgen Klopp thinks Lemar has his heart set on a switch to Barcelona in the summer and has ordered his Liverpool transfer chiefs to move onto other targets.
And the Mirror claim Bailey is the man leading the list of potential replacements for Philippe Coutinho.
Chelsea saw a bid of over £20million turned down by Bayer Leverkusen for Bailey last January.
The Blues though, have not not been put off and are confident they can strike a deal for the hugely-talented 20-year-old in the summer.
Chelsea have been watching Bailey in action in Germany for months, but Liverpool and United are poised to spark a bidding war.
Leverkusen will demand an incredible fee for their most prized asset, with club officials already telling suitors Bailey will cost upwards of £100m.
Bailey has been in fine form this season with ten goals and five assists in 22 appearances.
Liverpool 2017/18 Fixtures
Southampton (A) – Sun Feb 11
Porto (A) – Wed Feb 14 (Champions League)
West Ham (H) – Sat Feb 24
Newcastle United (H) – Sat March 3
Porto (H) – Tues March 6 (Champions League)
Manchester United (A) – Sat March 10
Watford (H) – Sat March 17
Crystal Palace (A) – Sat March 31
The youngster can play on the left or right wing and has speed to burn, making him a nightmare for opposition defences.
Liverpool already have a host of speedy wingers to chose from, but Klopp is desperate to add more creative fire power after losing Coutinho.
Bailey is thought to be keen on a switch to the Premier League, where one of his idols, Raheem Sterling, stars for Manchester City.