Grainy photos of the pair together down under have surfaced on social media in recent days.
A source told E! News: "Miley came back to LA on Monday after spending the holidays with Liam. She had the time of her life being with him and his family.
"She feels like they could pick up right where they left off. Miley has never gotten over Liam and always hoped they would get back together.
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"She doesn't know where it will go, but she definitely still loves him and wants to be with him. Liam has an interest in being back together too."
Miley and Liam fuelled speculation they were back together when they were spotted "kissing and cuddling" backstage at the Falls Music Festival in Byron Bay.
According to reports, the pair "were very affectionate, although they had security with them to ensure fans did not catch any snaps of them together".
-Bang! Showbiz