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According to The Guardian, Liverpool has accepted the world-record offer from its Women’s Super League rival.
Smith joined Liverpool just 12 months ago in a £200,000 ($271,000) transfer from Portuguese club Sporting in what was a club-record fee.
The fee is said to exceed the $1.1M deal Chelsea reached with San Diego Wave to sign USWNT defender Naomi Girma back in January, which set a new world record at the time.
Smith scored seven times in 20 WSL appearances during her sole season with Liverpool as the Reds finished seventh.
Olivia Smith scored seven WSL goals for Liverpool in her debut season at the club
Liverpool is said to have initially rejected several offers for Smith, who will now move to Arsenal for five times the amount the Reds paid for her last year.
The news comes as Liverpool looks to be closing in on a new manager for the Women’s team, with former Manchester City boss Gareth Taylor in talks with the club.
The Reds have been without a manager since Matt Beard was fired back in February, with former assistant Amber Whiteley having been placed in interim charge.
Gareth Taylor looks set to become the new Liverpool Women's manager
Taylor himself was fired by City just five days before before the Women’s League Cup final, having won two major honors since being appointed as manager in 2020.
Taylor also previously worked with City’s academy, where he managed new Liverpool men’s signing Jeremie Frimpong as a youth player.
Smith’s move to Arsenal will be the third time in just over a year that the world record has been broken for a transfer in women’s football.
Before Girma’s move to Chelsea, Zambia international Racheal Kundananji previously held the record, having made the move to San Francisco side Bay FC from Madrid CFF for a reported $860,000 in February 2024.
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