The Scot was relieved of his duties at on Wednesday after leading the club to its worst league finish since 1954.
John Barnes played 407 times for the Liverpool and believes that Villas-Boas, who was sacked by Chelsea in March after just 9 months at the club, could be the perfect fit to replace Dalglish.
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"Andre Villas-Boas is a good manager," Barnes told reporters.
"His footballing philosophy and his style of play fit. He proved he could win things at Porto.
"He was at the right club at the wrong time with Chelsea. There were a lot of problems for him there because of the older players. He is a proven manager and he would be coming in to a humbler squad than the one at Chelsea if he came to Liverpool.
"He will get backing from the players. They will be eager to learn and listen to his plans. I think if it is going to be him he could do a good job at Liverpool."
Rafael Benitez is another high profile manager that has been linked with the vacancy.
The Spaniard managed the club between 2004 and 2010, winning the Champions League in 2005, and still owns property in the area and Barnes believes the 52-year-old could return to the club.
"He would be a good option. He is still a very good manager, he's still highly regarded at Liverpool and a lot of the fans still love him,” he added.
Despite winning the League Cup and reaching the FA Cup final, the Liverpool hierarchy decided that the eighth-placed Premier League finish was not acceptable, but Barnes is of the belief that Dalglish should have been given more time.
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"I feel sorry for Kenny because there was an improvement in the team. In the last month the big-money signings like Andy Carroll and Jordan Henderson have performed well.
"If Kenny had stayed there would have been even more improvement, definitely.
"He had a long-term project. If you give managers time they will be successful as Manchester United have shown with Sir Alex Ferguson.
"He has laid the foundations and whoever comes in, I'm convinced they will be challenging for a top-four finish next season.
"He will be remembered by Liverpool as one of the club's greatest managers and the greatest player. His status has not been harmed whatsoever. He has said he is still available to help the club in any way he can so Kenny is still the king."