Despite the controversy, Dalglish thinks that Suarez should get a new deal, and that he should be judged on his football ability.
"I think it's an excellent decision," Dalglish told talkSPORT. "I think you should lock him in a room until he signs it.
"Luis will decide [if he wants to be at the club], not anybody else. Liverpool don't want to get rid of him. I think any football club would be much better off if they got Luis Suarez.
"He's had a couple of problems but if you judge him purely on football, which we should be doing, then he is a fantastic footballer."
Suarez returned from his ban in Liverpool's 1-0 loss to Manchester United yesterday.