Laudrup says that Allen should cost more than Downing and Henderson did because he is "on a level above".
"He is worth a lot of money because he's a good player," said Laudrup. "The manager knows him and knows if he wants to change the way Liverpool play he needs a player in the midfield like Joe Allen.
"But he also knows he's very, very expensive. We saw they bought a couple of midfielders in the last few years for a lot of money, but with all due respect Joe is on a level above.
"In my opinion, if one is worth £17m then Joe is worth more, perhaps over £20m. I'm talking as a football man not as a chairman but if the chairman asks my advice then I will tell him the same."
Allen made 36 Premier League appearances last season, scoring four goals.