The 20-year-old made just four first-team appearances for Liverpool last season including the Champions League clash against Galatasaray before being loaned out to Southampton.
The attacking midfielder recently penned a new deal with the Reds but they are keen for him to get more regular action and Lee has wasted no time in drafting him in.
"Danny is a dynamic midfielder who is very comfortable on the ball," Lee revealed. "He has got a great engine and is a very good passer, who will suit our type of football.
"I know him well. He's got a good work ethic and he's a young player willing to listen."