The Reds are facing a summer of transition after Brendan Rodgers was appointed as manager earlier this month, becoming the third man to take the reins at Anfield since Rafael Benitez was dismissed in 2010.
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Dalglish was given vast sums with which to strengthen the squad last summer, and Berger, who made nearly 200 appearances for the club, believes similar investment is needed if they are to have any chance of returning to the pinnacle of English football.
"They are far away from challenging, nowhere near in my opinion," Berger told Sky Sports.
"Hopefully I'll be wrong and they'll push the top teams for the Premier League title but I can't see it happening any time soon.
"A couple of years back they had [Fernando] Torres up front, then players like Peter Crouch and Robbie Keane in reserve, Craig Bellamy too.
"They used to have a big squad with quality players. Now they just have a big squad.
"These days when I see who is the on bench for Liverpool, I don't know who some of these guys are. It has to be different."
When asked which areas of the side required the most improvement, the former Czech Republic international replied: "Everywhere and in every department.
"Do they have a goalscorer? No, they don't. In the middle of the field Stevie G is without question the best player I ever played with but they need two top class additions alongside him.
"I just think they need players, really world class players. Which at the moment, they don't have. They need at least one in every department."
Berger is confident that Rodgers will have significant funds at his disposal before the start of next season, but admitted that only time will tell if the former Swansea boss can revitalise the Reds’ fortunes.
"I think you need a special type of manager to be in charge at Liverpool but I wouldn't want to judge Rodgers as I don't know too much about him and the job he is going to do," the 38-year-old said.
"I was happy that Kenny Dalglish came back and initially he did quite well but at the end of the season the board have obviously made their decision. If this will prove to be the right decision, or not, will unfold next season.
"The board believe Rodgers is the right man for the job and I suspect they'll give him money to spend, and time. That's the key thing, time."