Davies came to Anfield in the January transfer window this year, as Liverpool were facing a defensive crisis, but did not take the pitch for the Reds in the last campaign.
As the competition for the centre-back position at Anfield has grown, not only due to the return of Virgil van Dijk, Joe Gomez and Joel Matip from injury, but also the addition of Ibrahima Konate, Davies is looking at limited game time if he stays put.
Sheffield United manager Slavisa Jokanovic is keen on Davies and made him his number-one target for the centre-back position this summer.
Now the Blades have agreed on a deal with the Reds that will see Davies go on season-long loan to Bramall Lane.
The move still needs to be finalised and it is claimed that the switch is set to go through early next week.
The Reds will also receive an undisclosed loan fee as part of the deal and they refused to entertain any prospect of the Blades signing the player permanently.
Davies will look to settle into regular football at Sheffield United and help the Blades bounce back to the Premier League at the first time of asking.
