Jose Mourinho, who attempted to prise Gerrard away from Anfield during his time at Chelsea, has hinted that he could be interested in the England midfielder and the Spanish press reported on Friday that a €30 million bid is in the offing.
Alonso says he still holds his former club in high regard but suggested he would relish the chance to play alongside the Liverpool captain once more.
"We will see what happens," he said. "Steven is a legend at Liverpool and I have a lot of respect for Liverpool's fans and also the club, but it is clear that he's an awesome player. He has incredible quality."
Madrid are also believed to be considering a move for Roma midfielder Daniele De Rossi.