Leicester are looking to strengthen their squad over the summer, as they look to become an established Premier League side.
Nigel Pearson reportedly feels that Coates would be an upgrade on most of the defenders he currently has available to him and plans to lodge a bid for the Uruguayan in the near future.
The Foxes could face competition for the Liverpool centre-back, though, as Coates finished his loan spell at Sunderland very strongly.
The 24-year-old spent the whole of the 2014/15 campaign at the Stadium of Light and started to thrive towards the back end of his stay.
Coates struggled to make an impact on Wearside at first, but he impressed when the pressure was on and became a key player for the North East side as they successfully avoided relegation.
It means that it would not be too surprising if Sunderland decide to try and bring Coates back to Wearside on a permanent basis, should Liverpool put him up for sale and open themselves up to offers.