Inter Milan have confirmed their interest in Cardiff's Gary Medel but have given up on Man City forward Stevan Jovetic.
Jeffrey Schlupp and Liam Moore have signed new deals with Premier League newcomers Leicester City.
The 20-year-old, who spent the second half of last term on loan at Hearts, will continue his development in the Championship.
Yeovil manager Gary Johnson told the club website: "The signing of Michael will create strong competition for our already strong front line, which is what we need for the Championship season."
Ngoo is yet to appear for Liverpool's first team but is capped by England at Under-19 and Under-20 level.
He scored five goals in 16 games during his loan spell in Scotland.