The army bomb squad had to be called to the former Liverpool and Blackburn manager's house last July when undercover police scotched an attack on one of his neighbours.
Dalglish, 58, now Liverpool's academy director, and his wife Marina, 55, who runs a cancer charity, were not at the property in Birkdale, near Southport, at the time.
A gang of thugs were planning to launch the British military grenade - which explodes into 1,800 lethal fragments - through the living room window of businessman John Ball. Mr Ball was at home with his children aged nine and 17 months at the time.
Too close to home: Police comb the area outside Dalglish's property
The attack, which was abandoned when a security guard reported the men, would have been one of many intimidatory attacks on Mr Ball's properties and businesses.
Liverpool Crown Court heard Mr Ball and his business partner Terry Riley were the victims of more than 20 attacks because of a venture involving a Liverpool garage.
Three men were said to have arranged the intended bombing of Mr Ball's home on 26 July in a bid to pressure him away from giving evidence in an impending court case against them.
The trio allegedly used Mark Johnston, 21, to orchestrate the planned bombing from his Liverpool jail cell - where he was serving a nine-year sentence for robbery.
Johnston, of MacQueen Street, Liverpool, texted convicted drug dealer Carl Higgins, 29, to find another man to throw the grenade for 'a monkey' - £500. When police traced the texts back to Johnston and searched his cell they discovered the mobile phoned hidden up his bottom.
Messages from Johnston to Higgins included: 'Fits in ur hand', 'Lad, he's gota smash window an throw into house otherwise they wont pay gota be done rite lad', 'gota pull pin lad', and 'Make sure window smashed first an throw gota do the job as they want it doin lad'.
Higgins, who the court heard has a very low IQ after being attacked in April 2008 by a gang wielding an axe and sword, recruited unemployed criminal Simon Ignacio, 28.
When Ignacio and Higgins were rumbled outside their intended victim's house they fled but Igacio - who has convictions for battery and harassment - left the grenade in a shrubbery outside Mr Dalglish's home.
Jailed: Merseyside Police handout photo of Carl Higgins (left) and Simon Ignacio
His barrister, Nigel Power, said he had no idea he was carrying a British military grenade and thought he was only carrying 'an onion bomb' made from fireworks.
He also said Ignacio, of Lee Park Avenue, Liverpool, was only involved in the conspiracy for half an hour before the police were called and would not have thrown it if people were inside the house.
Higgins, of Helston Green, Huyton, Liverpool, was jailed for five years and Ignacio sentenced to four-and-a-half years.
Both men admitted conspiring to cause damage and being reckless to whether life would be endangered.
The judge, Mr Justice Edwards-Stuart, said: 'It was a real Army grenade which is absolutely a lethal weapon.
'Had there been anyone in the room and the grenade landed and exploded death would have been immediate. The explosion would have caused massive damage to the house.'
'It was an utterly reckless act,' he added.
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