The 20-year-old Copa America winner passed a medical and secured a work permit to complete a move that will see him join Uruguay team-mate Luis Suarez at Anfield.
“Liverpool have confirmed the signing of Uruguay international Sebastian Coates on a long-term contract,” the Reds said in a statement.
“The 20-year-old completed his transfer from Nacional after passing a medical and securing a work permit earlier today.
“Coates will now link up with his international teammates ahead of their friendly in Kiev on Friday night.”
The centre-back, who made his debut for Uruguayan side Nacional two years ago, said Suarez had been key to his decision to sign for Liverpool.
“Luis told me a lot about Liverpool – but about the fans more than anything else,” Coates told the club’s website. “He told me how passionate they are about the club and how supportive they are.
“Luis also told me about the history and the tradition of the club and now I feel very happy and excited to be here because I have left one great club in Nacional and signed for another great club with a fantastic history.
“To come to such a big club alongside a fellow countryman is very important for me. I know Luis will help me settle in, we have the same cultures and customs so having him around will help me a lot.”
It is more than 20 years since Liverpool were last crowned champions of England but Coates said: “I want to win as much as I can in a Liverpool shirt and that means the league title and any cup competitions we take part in.
“We have to set our sights high.”
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