The 47-year-old feels the Senegal international would be a fine addition to the Reds if they can secure his signature
The winger delivered eye-catching performances for the Hornets in his debut campaign after overcoming his initial struggle of adapting to the Premier League.
The forward scored six goals and provided six assists in 30 appearances across all competitions, including his brace against the Reds which ended the unbeaten run of the Premier League champions.
Sarr was, however, unable to prevent the Hornets from being relegated from the English top-flight after finishing 19th on the table.
The winger’s form for Watford has seen him linked to a number of European clubs and according to Sky Sports, the Championship club are willing to sell their star player but not for less than £40million.
Phillips feels the forward would be a hit in any of the top European clubs after making his own personal findings of him.
“He would be a good signing for Liverpool. I like him a lot,” Phillips told Football Insider.
“I was amazed when he first went there that he was not played straight away because he arrived for a lot of money.
“Nigel Pearson got the best out of him. He started to score some goals and from what I have been told from within the club he is a top player and will only get better.
“Any of those big clubs like Liverpool will be looking and if they can get him out of there on decent money he could turn out to be a great signing.”
Sarr began his professional career with Senegalese club Generation Foot before moving to France to continue his development, joining Metz.
The highly-rated forward spent two years with Rennes and scored 13 league goals in 59 appearances before he signed for Watford.
Sarr has 26 caps for Senegal since he made his debut against Namibia in September 2016 in an Africa Cup of Nations qualifier.