Villa bowed out of the FA Youth Cup as a second-half double from substitute Harry Wilson proved to be the difference in this fourth round tie.
Harry McKirdy fired the claret and blues back into the contest with an equaliser midway through the first half after Daniel Trickett-Smith volleyed the Reds in front.
But the hosts introduced Wilson at the break and his two pieces of brilliance swung the match in his team's favour.
Villa were boosted by the return of Jack Grealish, who has impressed during a loan spell at League One side Notts County.
The 18-year-old winger lined up in a support role just behind the front paring of McKirdy and Jerell Sellars.
It was the Reds who made the brighter start, though. Villa keeper Charlie Bannister made two fine saves inside the opening six minutes.
Firstly, he parried Trickett-Smith's stinging effort to safety, before tipping Ryan Kent's low shot around the post moments later.
But Trickett-Smith got his reward on 19 minutes, breaking the deadlock with a stunning 25-yard half-volley.
After controlling a high ball on his thigh, he found the top corner with a well-struck effort.
The claret and blues equalised nine minutes later when McKirdy made a clever run between the two centre-backs before sliding in to convert Daniel O'Brien's perfect low cross.
From there, Villa looked more threatening although they were unable to find the net again before the break.
Liverpool keeper Ryan Crump bravely rushed out to block McKirdy from close range, before making a low save at the near post when Lloyd Jones sliced a Jerell Sellars cross towards his own goal.
Two huge incidents in the second half played a big part in the overall outcome.
A minute after the restart, McKirdy headed home another superb O'Brien cross but the linesman controversially ruled that the Villa midfielder's cross had gone out of play.
Then, on 67 minutes, Liverpool ruthlessly made Villa pay for missing a clear-cut opportunity.
When Kevin Toner's bullet header was hacked off the line by Jordan Rossiter, Wilson gathered possession and motored into the away side's half before coolly slotting past Bannister.
The Reds substitute scored again 12 minutes from time, finding the bottom corner after receiving Ryan Kent's cross-field pass.
LIVERPOOL: Crump, Randall, Maguire, Williams, Jones, Rossiter, Ojo, Brannagan, Canos, Trickett-Smith, Kent. Subs: Brewitt, Jackson, Wilson [for Ojo, HT], Hart, Phillips [for Canos, 68].
VILLA: Bannister, Zazrivec, Green, R Strain, Lyons-Foster, Toner, O'Brien, McKirdy, Sellars, Grealish, Calder. Subs: Hepburn-Murphy, Taylor, Suliman [for Green, 68], T Strain [for McKirdy, 62], Lovett.