Newcastle have made Munoz their number one target to replace Anthony Gordon and have spent much of the last fortnight negotiating with Osasuna.
However, while Munoz’s contract at the La Liga club contains a €40m release clause, Newcastle officials had been negotiating over the terms of a possible deal and the precise details of a potential financial agreement.
It had looked as though talks were progressing, but with Munoz part of the Spain squad at the World Cup, the Magpies were unable to broker a final agreement for the 22-year-old.
That left them vulnerable to competition from rival suitors, and in the last 24 hours, Liverpool have made their own move for Munoz.
The Anfield club are understood to have tabled a €40m bid that triggers Munoz’s release clause and have been given formal permission to speak to the winger’s representatives.
Liverpool officials are understood to have reached a swift agreement with Munoz and his negotiating team which is set to see the Spain international head to Anfield rather than St James’ Park.
The expectation is that Liverpool will now tie up a deal in the next few days, with Real Madrid’s retention of a proportion of Munoz’s economic rights not expected to present a problem to the transfer.
Munoz’s anticipated move to Anfield is a major blow to Newcastle, who had focused a lot of time and attention on trying to secure a deal for the winger.
Newcastle have already missed out on one wide-attacking target this summer, with Zadok Yohanna having joined Brighton despite Newcastle officials having discussed his position with Swedish side AIK Stockholm.