The former Reds defender says the Croatian has gone from a liability to the keystone in the club's defence.
Lovren was signed with big billing from Southampton for around £20 million two years ago, following Adam Lallana and Rickie Lambert in swapping Hampshire for Merseyside in the summer of 2014.
However, his first season at Anfield was characterised by defensive errors and uncertain displays under Brendan Rodgers, which resulted in him being dropped at more than one points during the campaign.
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He began the current season in similarly inauspicious fashion, being dropped by Rodgers in early September and not featuring again in the Premier League for a month-and-a-half.
However, under Klopp the 26-year-old has enjoyed a resurgence at Anfield, and he has rebuilt his reputation to become a popular figure with supporters.
Carragher, who made 737 appearances mostly as a centre-back during his 16-year professional career with Liverpool, believes that Lovren is now the single most important figure in the Reds defence and has firmly established himself as Jurgen Klopp's first choice.
The defender-turned-pundit told talkSPORT: "He is now showing the performances we saw at Southampton and why Liverpool spent such a big money on him.
"He struggled as soon as he came in, he made a lot of mistakes, but he was involved in a team that conceded goals. Under Brendan Rodgers they were very open so that obviously doesn’t help you as a defender.
"But I think Klopp sees him as Liverpool's best centre-back now. It is always Lovren plus one so for Lovren that is a massive step up from the last couple of years."
Lovren is a certainty to start for Klopp's side in tonight's Europa League final having played a huge role in the continental campaign so far.
The defender has played 90 minutes in every match since the first leg of the last-16 clash with Manchester United, and came up with the defining moment of the run to the final when he headed the last-gasp winner to complete the Reds' stunning turnaround against Borussia Dortmund in the quarter-final second leg at Anfield.