The 22-year-old defensive midfielder joined Sporting Lisbon in the summer of 2021 on a five-year contract from Famalicao.
Ugarte has been a regular for the Portuguese outfit this season and has featured in all but two league games for Sporting Lisbon.
Liverpool are looking to rebuild their midfield in the approaching summer transfer window and the 22-year-old has emerged as a key target.
Ugarte is highly regarded by Sporting Lisbon coach Ruben Amorim, who sees him as an important member of his team.
However, Liverpool are closing in on landing the Uruguayan international, according to DAZN Italy journalist Orazio Accomando, and are firmly in pole position.
Sporting Lisbon have a contract with Ugarte until the end 2025/26 season, but the player has a €60m release clause in his contract.
Ugarte has featured a total of 45 times for Sporting Lisbon in all competitions this season.