The Uruguayan forward has made it clear that he wants to leave Merseyside and James, who spent seven years at Anfield in the 1990s, believes that his presence is hindering other players at the club.
"On a purely footballing side of things, as talented an individual as he is, the problem I find is that everything seems to go through Luis Suarez," PA quotes the 43-year-old as saying.
"You have this talented player and there is no question about that, but does it make the team better?
"I think there is so much hinging on Suarez that it is actually stopping Liverpool from progressing."
Arsenal are favourites to sign the 26-year-old and have made two failed bids.