Liverpool, six points clear at the top of the Premier League and unbeaten at the halfway point in the season, are the highest scorers in the division with 43 goals but have improved noticeably at the back, shipping a meagre seven goals so far this term.
That tally has put them on course to beat the PL season record for goals conceded of 15 set by Chelsea in 2004/05.
And Hargreaves says Klopp should be commended for improving Liverpool, both with the purchase of their club-record signing Virgil van Dijk, and by turning lesser-known lights into Premier League stars.
"Now all the other teams will be thinking, 'Who is the next player who can take us from there to the next phase?'
"All of a sudden they went from not having a back four to having the best in the league, and I think Klopp deserves a ton of credit for building, finding players that other people wouldn't find and turning them into terrific players."
Liverpool will be hoping to continue their pursuit of a first PL title with a home win against Arsenal in the 17:30 GMT kick-off at Anfield on Saturday.