The Anfield boss has urged his side to concentrate on their Premier League clash against Arsenal this weekend after their League Cup celebrations were cut short
The Reds face Arsenal, who currently occupy the position, on Saturday, with three points potentially a necessity for their ever-fading hopes of qualifying for next season’s Champions League.
The Gunners are currently seven points clear of Liverpool following their 5-2 comeback victory over north London rivals Tottenham, and Dalglish knows that Arsene Wenger’s men represent a daunting challenge.
"They were fantastic - 2-0 down and then they got five goals in about 20 minutes, which is a fantastic turnaround,” the Scot told reporters.
"They were going through a tough time after a heavy defeat in Milan [losing 4-0 to AC Milan in the Champions League] and I think that took the wind out of their sails.
"But whether or not both clubs won last Sunday this was always going to be a difficult game.
"We know what we are up against, we know what we have got to do and we will compete as well as we can.
"We know they have quality but we're not so bad ourselves."
After beating Cardiff City in a penalty shootout to claim the League Cup, the Reds' celebrations were cut short due to international commitments in midweek.
Now with the team back in training, the Scot is fully focused on claiming the valuable fourth spot.
He added: "What happened last Sunday, I think they fully deserved it - on the day and in their performances in the competition.
"The boys have been away for international matches but I am sure they have enjoyed the success they have had and they will put it behind them and get themselves focused for the match on Saturday, which will be really difficult.