Rodolfo Borrell's youngsters faced one of the finest youth sides in Europe and found themselves trailing to two magnificent first-half goals from Joao Teixeira and Alberto Coelho.
The Reds stepped up a level following the interval but could not mount a fightback despite hitting the post through substitute Krisztian Adorjan.
Farley Rosa then sealed the triumph with a magnificent third four minutes from time.
The result means Liverpool are pointless following their first match in Group Two and will now look to bounce back in time for their Barclays Premier Reserve League opener against Norwich City next week.
Ahead of the contest Borrell had warned of the threat the Portuguese outfit would pose and the size of the task was perhaps magnified by the Spaniard's team selection with both Jonjo Shelvey and Jack Robinson amongst the starting XI.
Indeed, the Leoes arrived on Merseyside boasting an Academy set-up that has nurtured the likes of Paulo Futre, Luis Figo, Nani and Cristiano Ronaldo to name but a few.
Five consecutive league titles at U18 level provided further proof of the challenge that lay ahead and much of the pre-match observations centred upon how many of the away team's players had been linked with moves to the continent's big guns.
It set it up for a mouthwatering night of football which was somewhat fitting on a day that marked the 47th anniversary of the Reds' first ever foray into Europe.
The hosts made a positive start too and Raheem Sterling was first to show on four minutes when he produced some neat skills on the left before delivering a cross that fell too close to Rafael Veloso in the Sporting goal.
The visitors responded and Teixeira was unlucky when he cut in from the left and curled a delightful effort just over the top.
Ricardo Sa Pinto's side looked calm and composed in possession, assuming a control of the proceedings that lived up to their pre-match hype. However, Liverpool's pace on the break was a clear threat and on 15 minutes Shelvey almost released Toni Silva with a well weighted pass that was brilliantly gathered by Veloso.
The Portuguese stopper had been a virtual spectator up until that point but was forced into action just seconds later when he fisted away Sterling's low drive.
The away team may have looked strong in open play but from set pieces it was a different story and twice Liverpool's delivery from corner kicks caused mayhem in the Sporting box before Shelvey arced a free-kick inches over the crossbar.
There had been little between the two sides as the half hour approached but on 26 minutes the visitors produced a moment of magic to snare the lead.
Teixera had been a constant menace to the Reds defence and it was his neat exchange with Coelho that saw the No.9 flick the ball back into his path for him to clinically finish with the minimum of fuss.
The goal stung Liverpool into life and Silva showed Michael Pinto a clean pair of heels before fizzing an effort just wide.
Next, Sterling cut the ball back for Adam Morgan from the left but the striker could only stab an effort wide at the near post.
A leveller prior to the interval would have been the perfect tonic for Borrell and co but it was the visitors who put together another sublime move to double their advantage on 38 minutes.
A flowing piece of play opened the Reds up down the right and when the ball was cut across goal Coelho arrived to strike a sweet shot beyond Belford and into the far corner of the Kop end net.
There was little Liverpool could do in the face of such quality but they did have a chance to reduce the arrears just seconds later when Suso blazed over with the goal gaping after Morgan's perseverance down the left.
It would have been a tough half-time team talk for Borrell but he resisted the temptation to make changes and instead asked the 11 who had started the encounter to show what they are made of.
To their credit they responded and Morgan was unfortunate not to turn home after Veloso had flapped at a corner.
Next, Sterling showed just why he is regarded as such a promising talent with a superb run and cross before Silva dragged a shot wide from 25 yards.
It had been much better form the Liverpool point of view and on the hour mark the Reds coach made a triple change with a last throw of the dice.
On came Tom King, Adorjan and Michael Ngoo who answered the call despite having only just returned to Kirkby following his participation at the U20 World Cup.
It gave the home team a completely different threat and after Ngoo fired over following a neat one-two with Suso, he teed up Adorjan for the Reds' best chance of the match.
The towering striker surged down the left and crossed low for the Hungarian who saw his shot crash back off the near post.
It was all Liverpool but on 65 minutes it should have been over as a contest when Bruma played in Carlos Chaby who cut inside and fired over when he had looked odds on to score.
Sporting had appeared rattled but they slowly began to weather the storm and they sealed the victory four minutes from the end when Rosa curled home a sensational third.
Liverpool: Belford, McGiveron, Sama, Wisdom, Robinson (King 60), Coady, Shelvey (Adorjan 60), Silva, Sterling, Suso, Morgan (Ngoo 60). Unused Subs: Stephens, Rafferty, Roddan, Hajdu.
Reds crash to Sporting loss - Liverpool FC
