The England youngster is being heavily linked with a move away from Anfield - by the Daily Mail, among others - as contract negotiations with his current club have so far failed to reach a positive conclusion.
Those negotiations have been on-going for several months, with manager Brendan Rodgers recently revealing that talks had been put on hold until the summer, according to the BBC, leading to the player being extensively linked with moves away.
Now, Tony Cottee has said the youngster should stay at his current club.
“Liverpool is the best place for him and personally I'd like to see him settle down and sign a new contract,” said Cottee.
“He's got to be careful that he doesn't get distracted in terms of his form, it's important to get his head down. He's not the finished article yet.”
Sterling recently confirmed to the BBC that he had turned down a new £100,000-a-week deal at Liverpool, but insisted that he was not a money-grabbing 20-year old and that the situation is not about the money.
Cottee, however, has questioned the role that his agent is playing in the situation, with him likely to be negotiating to try and get a better deal for his client. He admits that he would be financially better off from a move, and that there will be a string of clubs interested in his signature should he become available.
"I just wonder what part the agent is playing in it,” added Cottee.
"Financially, he'll be well off anyway. Could he go to Arsenal? Yes, I believe he could. He could also go to Chelsea or Manchester City. There'll be a string of clubs lining up to get him because he's that good a player.”