Although the Merseyside outfit lifted the League Cup in February and have qualified for the FA cup semi-finals, a 2-0 defeat against Newcastle on Sunday marked their sixth reverse in seven league games.
And five-time league championship winner Lawrenson believes that, although the Scottish manager is not yet in jeopardy, Saturday's game at Anfield is crucial.
||Kenny Dalglish is 7/1 with Sportingbet not to be Liverpool manager on the last day of the season
"They have Villa at home at the weekend and I hate saying it's a must-win, but it is. We live in an instant media world, but I think the Liverpool owners are in it for the end game.
"I think he [Dalglish] will be fine, but at any level, you have to win games. I really don't believe he will be sacked."
Lawrenson also suggested that the club’s progress is being hindered by the difficulty of competing financially with their rivals, due to a relatively small stadium.
"Until they get into the [top four] they can't attract Champions League players, but how do they get there? Pay stupid money?"
"Until they get into the Champions League places they can't attract Champions League players, but how do they get there? Pay stupid money?
"They're trying to play catch-up with other clubs. Anfield is full at 40,000 every week, but other clubs, Arsenal get 60,000, Manchester United 75,000, and then you have Manchester City and Chelsea."
The failure of the club's misfiring attack to convert chances has attracted attention over the course of the season, and Lawrenson opined: "I think people know what Kenny is trying to do.
"The biggest problem is, [Charlie] Adam, [Stewart] Downing, [Andy] Carroll and [Jordan] Henderson between them have contributed six league goals. You should be looking at 25-30 goals between them.
"Andy Carroll hasn't been the same player. He's not been the same. I think when he took his shirt off [after being substituted against Newcastle] it was out of frustration."
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