The 33-year-old singer was performing in Sydney, Australia, when she told the crowd she would sing 'F**k You' for the 66-year-old actor, who has been subjected to a huge backlash after shockingly confessed he sought racially-charged revenge after a friend was raped.
She told the crowd: ''Normally, I dedicate this song to Donald Trump, but tonight I'm dedicating it to Liam Neeson.''
The 2009 track was written about the far-right British National Party (BNP) and includes the lyrics: ''You're just some racist who can't tie my laces. Your point of view is medieval.''
Lily also slammed Liam's ''disgusting racist anecdote'' and insisted she didn't believe it was true because she doesn't think men every try to ''defend the honour'' of women close to them.
She wrote on her Instagram story: ''I don't believe Liam Neeson's racist anecdote, which makes it even more disgusting.
''I don't know a woman who hasn't been harassed and I have NEVER heard of an instance where a man has actually gone out to defend her honor. It just doesn't happen.''
Liam sparked a huge outcry when he candidly admitted he understood his character in his latest film, 'Cold Pursuit's desire for revenge after he had deliberately gone looking for a fight with a black man because he was so desperate to ''kill'' someone after a female friend was raped.
He said: ''There's something primal - God forbid you've ever had a member of your family hurt under criminal conditions. I'll tell you a story. This is true ... She handled the situation of the rape in the most extraordinary way. But my immediate reaction was...
''I asked, did she know who it was? No. What colour were they? She said it was a black person.
''I went up and down areas with a cosh, hoping I'd be approached by somebody - I'm ashamed to say that - and I did it for maybe a week, hoping some 'black b*****d' would come out of a pub and have a go at me about something, you know? So that I could kill him.''
The veteran actor later tried to clarify his comments on 'Good Morning America' and insisted he is ''not racist''.
American Thighs was released on this day in 1994.