The long-time Reds servant has hit out at the club's hierarchy and accused them of taking the side backwards.
The 54-year-old argued that the team risk falling further behind the top five, and that the toll of the Europa League will make their season more difficult as they try to keep up with those ahead of them.
Lawrenson told the Daily Mirror: "The club are at a crossroads and I would argue they are even further off finishing in the top four now than they were at the start of last season.
|MARTINEZ TO MAKE MIND UP
|Wigan boss on the verge of deciding with regards to interest from Liverpool
"If anything, they are going backwards, not forwards.
"I look at next season and I think the best they can hope to finish is sixth - don’t forget they’re also in the Europa League and playing Thursday-Sunday affects the dynamic of the team.
"Looking longer-term, they aren't going to be able to attract the best players if they are not in the Champions League and they are going to have to either decide to build a new stadium or refurbish Anfield – both of which will cost a lot of money.
"There is an opportunity now for Liverpool to go out and get the players they feel they need to improve before the Euros and before their rivals have a chance to snap them up.
"But instead we have a situation where there is no-one at the club to sign players.
"There's no manager and Damien Comolli, who handled transfer negotiations, has still not been replaced."
The pundit also described the lack of a ready replacement for sacked manager Kenny Dalglish as a serious error by the American owners, John W Henry & Tom Werner.
"I know Liverpool’s owners are going about the search for a new manager the American way, but they've got it wrong," he opined.
"I can’t believe they are doing it so publicly. They have basically let everyone know who is on their short-list and who they want to interview.
"I didn't see West Brom and Aston Villa do that, and leave it to the bookies to compile a short-list of managers for you.
"That might be the way they do things in America, but this is England and we do things differently.
"They must have had misgivings about Kenny Dalglish for some weeks before they sacked him and yet they didn't line up a replacement. I know people will say that’s not the correct way to do things, but that’s football."