Former Real Madrid and Chelsea manager Ancelotti, who was also linked with the job, has told reporters he would return to management, but only next season.
"I enjoy my time now but, of course, I want to come back to manage -- to work -- because it is my passion," the 56-year-old Italian said at a press event in London. "I want to take my time to rest, but next season I am ready."
The fiery Klopp, twice a Bundesliga champion with Dortmund, who he also steered to the Champions League final in 2013, has made no secret of his desire to work in England.
The charismatic German, who forged his reputation by turning 1997 Champions League winners Dortmund, who were relegation candidates under predecessor Thomas Doll, into one of the most exciting brands in world football.
News that makes sense
Your trusted source for staying up-to-date with the world around you. Get free daily news updates and analysis, straight to your inbox.
He left the Ruhr valley club in 2015 after seven years to take a break from football after finishing seventh in the Bundesliga.
Known for his wit and exuberance as much as for his high pressing, quick counter-attacking and never-say-die brand of football, Klopp is reportedly willing to curtail his sabbatical to revive Liverpool's fortunes and is on the verge of committing to a three-year contract.
He has also asked to bring former assistants Zeljko Buvac, called the 'brains' behind Dortmund's success, and Peter Krawietz in as part of his coaching staff.
Germany's World Cup winning captain and manager Franz Beckenbauer called Klopp one of the "best coaches in the world" and urged Liverpool to seal the deal quickly.
"He is fantastic. He's one of the best coaches I know in the whole world...," Beckenbauer said.
"Liverpool is also one of the biggest clubs in the world, so Liverpool and Juergen Klopp is definitely a good combination.
"If Liverpool has the chance to sign Juergen Klopp, then they should do it," he added.
(This story has been refiled to remove extraneous word in paragraph six)
(Reporting by Simon Jennings and Shravanth Vijayakumar in Bengaluru; editing by Sudipto Ganguly)
