A source close to the Australian heartthrob said: "They hang in Liam's trailer for hours."
The rumoured couple were spotted looking cosy on the Fourth of July, as they grabbed drinks together in Malibu, California, but Liam, whose older brothers Chris and Luke both have families, is worried about scaring the 22-year-old beauty away by declaring his love for her too quickly.
The insider told OK! magazine: "He's been shy about expressing his feelings for her, but he's in love. [He] doesn't want a fling - he wants to start a family like his brothers."
While Miley, 22, recently started dating Victoria's Secret model Stella Maxwell after confirming she is bisexual, Liam hasn't been seriously linked to anyone since their break-up.