But he firmly believes his old club are in pole position to secure Champions League qualification.
The defending champions have struggled under new manager David Moyes following the retirement of Sir Alex Ferguson and trail their north-west rivals by seven points.
Despite dropping two points at West Brom on Sunday, Dalglish believes Liverpool are still the favourites to finish in the top four.
"Liverpool are in fourth spot right now and someone has to come and take it off them because they are not going to give it up," he told Press Association Sport.
"They are two points better off than the team below them (Everton) and they have a massively better goal difference.
"They have all the big teams apart from United to come to Anfield and as the team immediately below them found out last week they are pretty awesome at Anfield (winning the Merseyside derby 4-0).
"You have to play one game at a time but they are in a very good position at a good time.
"United have been one of the top-four teams for a long time and although they have not run their race yet it is very difficult for them.
"Manchester United in top form can achieve it but they've not been in top form.
"There are seven or eight teams at the top and they all have an opportunity to get one of the top four spots and Manchester United are one of them."
Key to Liverpool's fortunes is the partnership of Luis Suarez and Daniel Sturridge who have scored 37 league goals between them.
Dalglish believes they have quickly learned to work with each other for the benefit of the side.
"They have great individual ability and they sacrifice their individual talents for the benefit for the team and you cannot ask for any more than that," added the Scot.
"They just have to perform between now and the end of the season."
Despite concerns over their defensive frailties, Dalglish is confident they can out-score most opponents.
"If you score a lot more goals than you lose it is a good habit," he said.
"Because they are attack-minded they might lose more goals than they would like to do but there is no-one can be disappointed with the amount of points Liverpool have got so far this season."