Coates is in England discussing terms as a move to the Premier League is arranged, meaning interest from Madrid may be too late to scupper deal with Kenny Dalglish's men
On Thursday Goal.com revealed how the 20-year-old was set to arrive on Merseyside later today, ahead of a €7.9 million move subject to a medical and special dispensation over the right to work in the UK.
The Reds had an offer for the highly-rated Uruguayan defender accepted on Wednesday and the player's father and agent have been in Liverpool discussing personal terms with director of football Damien Comolli.
However, Ovaciondigital.com reports that Atletico Madrid have entered the fray and are now willing to flex their financial muscle by offering the Uruguayan club €1 million more than Liverpool's €7.9m bid as the deal is not yet closed officially.
It is believed though that Coates has already made up his mind over playing at Anfield this season, having already rejected a larger offer from Ukraine's Dnipro.