A shock loss to Brighton on Wednesday saw the Reds fall seven points behind Manchester City, who they face at Anfield on Sunday.
And Carragher thinks Jurgen Klopp's side are all but out of the title race and should focus on securing Champions League qualification.
" Liverpool have to be looking at the top four positions, and to say the obvious, take each game as it comes because the form is so down.
"There are so many changes to the team that you are never quite sure what it's going to be. Alisson was out at the last minute against Brighton and Liverpool are still waiting for players to come back.
"So I think from now, if you were to offer Liverpool a top-four finish they would take that and shake on it."