The £19.8m pre-tax loss for the year to May 2016 was largely due to cost of signing big-name players and a payoff for Brendan Rodgers, who was sacked as manager in October 2015.
Liverpool signed 12 players in the period, spending £32m on striker Christian Benteke, who has since left, and £29m on Brazilian forward Roberto Firmino.
Revenue rose £3m to £301m.
The loss compared with a £60m profit for the previous year, which was largely due to the £75m sale of Luis Suarez to Barcelona.
The club also made £49m from the sale of Raheem Sterling to Manchester City.
Commercial revenue fell £700,000 to £116m, but match day income increased by £3.4m to £62m following a pre-season tour to Australia and Asia. The team also reached the League Cup and Europa League finals.
Media revenue increased by £1m to £124m.
Chief operating officer Andy Hughes said the club, which has been owned by US firm Fenway Sports  Group since October 2010, continued to make "solid financial progress".
"We have seen continued investment in the playing squad, the expanded Main Stand, the new flagship retail store opening later this year, fully refurbished retail stores in Liverpool and Belfast, and we are consulting on a proposed development at our academy in Kirkby to bring together the first team and our young players," he said.
The club said it expected "significantly improved" results for the current financial year.
It has hired Peter Moore, chief competition officer at gaming firm Electronic Arts, to take over as chief executive in June.
The club hopes the 61-year-old - an avid Liverpool fan - can draw on his marketing expertise to boost commercial income.

The family was gunned down on Saturday in the single worst incident of ivory poaching recorded in the country.
Kenya has recently taken a more aggressive stance against poaching as it tries to combat a surge in demand for ivory from Asia.
About 100 elephants are killed each year in Kenya by poachers.
Despite a long-standing ban on the international trade, ivory from elephants is often smuggled to Asia for use in ornaments, while rhino horns are used in traditional medicine.
Saturday's killings took place in Tsavo National Park, Kenya's largest single continuous ecosystem, which is home to some 13,000 elephants.
"[It] shows the great lengths these criminal cartels are ready to go to get ivory. It's really tragic," Kenya Wildlife Service spokesman Paul Udo told Reuters news agency.
He said the poaching gang is believed to be made up of 10 people and was being hunted by rangers on foot and from the air.
In a statement, the Wildlife Service said that all the elephant carcasses had bullet wounds.
The Kenyan government banned trade in ivory in 1989, and levels of elephant poaching subsequently declined, but there has been a rise in the illegal practice in recent years.
Liverpool Football Club has fallen into the red despite posting record revenue.
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Kenya's Wildlife Service says it is pursuing a gang of poachers they suspect of killing an entire family of 11 elephants.