The 23-year-old signed for Real Madrid last summer after playing a major role in the Borussia Dortmund side which won the Bundesliga title in 2010-11, picking up the Bundesliga's Player of the Season award in the process.
However the Turkish international failed to break into Jose Mourinho's Real Madrid side and therefore has been allowed to leave the Bernabeau on loan in order to find regular first-team football.
|35/1||Liverpool are 35/1 to win the 2012-13 Premier League with Paddy Power|
A number of clubs, including Premier League rivals Arsenal, were also in the hunt for Sahin's services but Brendan Rodgers has won the race for the playmaker.
Sahin is Turkey's youngest ever goalscorer with a goal on his international debut in 2005, the 23-year-old has since made 31 appearances for his country.
A club statement read: "The 23-year-old will now undergo a medical on Merseyside."