Rafael Camacho is set to return to Sporting Lisbon in an initial £5 million deal.
Several European clubs had been tracking the Liverpool winger after he rejected a new long-term deal due to concerns about his regular first-team prospects.
AC Milan, Schalke and Wolves all expressed an interest in Camacho but the teenager has instead chosen to rejoin the club where his career started.
The Reds took the decision to sanction the 19-year-old’s sale amid the threat of losing him for a nominal fee once his existing contract expired next summer.
Camacho’s overall transfer fee could stand at £7 million should Sporting meet a number of domestic and European targets during the player’s time with them.
Liverpool will also retain a 20 per cent sell-on fee as well as a buy-back option.
Sporting previously tried to re-sign Camacho on a loan deal in January but saw their request turned down by the newly-crowned European champions.
His belated transfer is not linked to any potential signing of Bruno Fernandes, who has been linked with a move to Merseyside in recent weeks.
Liverpool are not among those in the running to sign the 24-year-old midfielder.
Camacho made two appearances for Jurgen Klopp’s side last season, with his Premier League bow coming as a substitute in January’s win over Crystal Palace.