Liverpool have snapped up James Milner on a free transfer - but are still playing hardball over Manchester City’s pursuit of Raheem Sterling.

The Merseysiders announced today that they had agreed personal terms with the popular Blues midfielder, who will join them on July1.

But the Anfield club is adamant that it will not budge from its entrenched position over Sterling, who is keen to leave but has two years left on his deal.

City are keen on taking the 20-year-old England starlet but will not pay over the odds for a player whose price will tumble next season as the end of his Liverpool contract approaches.

Liverpool also have a tough decision as comments made by Sterling’s agent have infuriated supporters, making his tenure at the club difficult if he stays next season.

The Merseysiders are telling anyone who cares to ask that Sterling is not for sale and that they will not be held to ransom.

But it also appears that the rumours that United are readying a £25million bid for the player emanated on Merseyside, perhaps an indication that Liverpool are ready to kick off an auction for the player, with Arsenal also interested.

Milner will take a lower wage to end his five-year stay at City, accepting a reported £120,000 a week after snubbing a City offer of £165,000.

The Yorkshireman leaves the Blues after winning two Premier League titles, an FA Cup and a League Cup, as well as taking his tally of England caps to the 53 mark.