The Magpies had even arranged for a medical to take place in the United States, hoping to get the transfer finalised before Munoz returned home following his involvement at the World Cup.
Newcastle had been told that personal terms were agreed between Osasuna and Munoz's representatives, with the club's hierarchy confident a deal was close, before Liverpool entered the picture late.
Munoz had been open to joining Newcastle United and made that clear during discussions, but the pull of Liverpool, the prospect of Champions League football, and a direct intervention from new head coach Andoni Iraola ultimately swayed his decision, reports ChronicleLive.
Iraola, in his first significant move since taking over at Anfield, instructed Liverpool's recruitment team to push hard for Munoz, with the 23-year-old willing to hear what was on offer despite having already accepted Newcastle's personal terms.
The Spain international ultimately chose Liverpool, even with Eddie Howe's club believing a deal had been all but completed.
Newcastle had met all of Osasuna's financial demands and hoped to push the transfer through following last weekend, only to be told the player had other options as Liverpool accelerated their own approach. It echoed last summer's pursuit of James Trafford, when Manchester City intervened at a late stage to win the race.
Newcastle are now reassessing their options elsewhere in the market, though the club do not intend to react rashly and will continue working to their established strategy of targeting hungry, ambitious players.
With pre-season approaching, Howe's only confirmed signing remains goalkeeper Ewen Jaouen from Stade Reims. Newcastle still need a replacement for Anthony Gordon, along with reinforcements at right-back, in midfield and on the right side of attack, all while working within the financial constraints of the Premier League's spending regulations.