The Reds captured the highly rated teenager in the summer of 2016 from Fulham, but were unable to agree a fee with the Cottagers, sending the matter to a tribunal.
The tribunal has now ruled that Liverpool will have to pay Fulham £4m for wide-man Elliott.
Fulham will also be entitled to a 20 per cent sell-on clause, meaning that the final total they end up banking for Elliott could eventually be higher than £4m.
It is claimed that Fulham are happy with the outcome.
Elliott is a highly rated talent at Anfield and made his Premier League debut for Liverpool in January 2020 against Sheffield United.
Liverpool shipped Elliott out on loan to Championship side Blackburn Rovers in the last summer transfer window in order to provide him with regular first team football.
Tony Mowbray has handed Elliott regular game time at Ewood Park, with the winger so far turning out in 22 games for Blackburn.
Elliott, 17, is set to turn 18 years old before the end of the current campaign.