It has been a season to forget for the Reds and their misery were further compounded and fears deepened on Wednesday night as Roy Hodgson's men slumped to their ninth defeat of the season, losing 3-1 at Blackburn Rovers.
It was not so much the scoreline that was depressing, but how comfortable Blackburn were made to look on the night - just four days after Liverpool beat Bolton 2-1 at Anfield.
The defeat leaves the Reds 12th in the Barclays Premier League, just four points away from the relegation zone.
"Relegation has surely got to be on our minds. It is a real fear," he spoke in an interview with Sky Sports News.
"This time of the year, the Reds are expected to be much higher up the table and sitting in the bottom-half of the table after 20 games is just unacceptable.
The problem is likely to more psychological than anything else and the 53-year-old admits the Reds are in a desperate need to turn things around.
He added: "The atmosphere at Anfield has to change. They have to find the feel good factor.
"It's frustrating that one minute they're up and the next moment they're down.
"They beat Bolton at the weekend only to lose to Blackburn just a few days later. It's is worrying.
"Just when you thought it couldn't get any worse, it just did. They are truly on a free-fall.
"Wednesday night's performance was just so poor."
Liverpool find themselves facing the toughest match possible next - an FA Cup third round tie with league leaders Manchester United on Sunday
Fairclough admits there couldn't be a worse time to face the Red Devils but has warned his former side of the psychological damage a defeat at Old Trafford will bring.
"There will be huge pressure on the team against Man United in the FA Cup third round on Sunday.
"It's probably the worse time to play against them.
"But you wouldn't want to lose at Old Trafford. It will be the worse possible scenario coming off such a disappointing result on Wednesday."
Meanwhile, Hodgson appear to be on the brink of an Anfield exit after reports that the owners are ready to install Kenny Dalglish as the club's interim manager while they search for their new man in charge.