Liverpool must capitalise on their home advantage in Sunday's FA Cup derby because Everton are "on fire" under Carlo Ancelotti, according to Jurgen Klopp.

Anfield will stage a touchline battle between Klopp and Ancelotti for the second time in six weeks after the Italian visited in the Champions League in his previous guise as head coach of Napoli.

The spoils were shared that night, with Liverpool coming from behind to earn a 1-1 draw, but Ancelotti was soon ousted from the troubled Serie A club.

Everton offered the former AC Milan, Real Madrid and Bayern Munich boss a rapid return to the game, and wins over Burnley and Newcastle gave Ancelotti a positive start.

A narrow defeat to Manchester City followed, but Klopp senses there is a revival under way with Liverpool's neighbours.

"They are obviously on fire and no surprise and we have to be sure we are ready for that," Klopp said.

"We need the crowd. That's the only advantage we have in this cup game. There's no favourite. There's just two teams who play each other, in this case two teams from the same city. It's a derby; it's a big one.

"The only advantage we have is it's in our stadium, so let's use that and give everything – that's the plan."

The third-round tussle follows in the wake of Klopp's team completing a full year unbeaten in the Premier League, confirming that feat with Thursday's 2-0 victory over Sheffield United at Anfield.

However, they fell to Wolves at this stage of the FA Cup last season, and with Klopp likely to delve into his squad resources to give several first-team regulars a break, Everton may sense a chance to spring another upset.

Certainly, Klopp is not blind to the quality Everton possess. Ancelotti is a former FA Cup winner too, in his time at Chelsea.

"Carlo Ancelotti is one of the smartest people I ever met and he wouldn't have taken the job if he didn't have a good squad," Klopp said.

"We were always convinced that the Everton squad is good, it's really, really good. They invested in a few years really a lot in the transfer market.

"They brought in really good players and it didn't work out for some reason. But the combination of a good manager and a good squad helps from time to time in football. Carlo is obviously somebody who can lift a group in the moment when he enters the room."

Klopp's starting XI may be largely unrecognisable from recent Premier League line-ups, the German determined to take rational decisions rather than emotional judgements at a time when some of his players are due a break.

"We respect them as you imagine, we respect the competition, we respect what the people want us to achieve because that's a very important part of it, but I cannot do things because of the name of the opponent," he said.

Young striker Rhian Brewster, linked with a loan move away from Liverpool, will be in the Reds' squad, and there could be a part to play for Takumi Minamino after his arrival from Salzburg.

Klopp reported Alex Oxlade-Chamberlain, Dejan Lovren and Fabinho are all making good progress as they recover from injuries.