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Us Weekly claims the duo is also living together, as was expected when Miley was spotted moving her belongings into Liam's home earlier this week.
"Miley and Liam are 100 percent back on," a source told the magazine.
The once former couple began reconciling last year and spent the new year together with Liam's family in Australia.
Liam has "told friends they're engaged again," the source said.
The two were originally engaged in 2012 but they called off their engagement the following year.
"Miley and Liam are picking up right where they left off," a second source says. "She's moving back in with him and bringing her dogs. She has always loved him."
Earlier in the week, Miley was spotted wearing her Neil Lane-designed sparkler, which Liam originally proposed with, on her ring finger.
Since they split, both Miley and Liam have dabbled in other relationships, but neither could get the other off of their minds.
"[Liam] has never met anyone quite like her who has that hold on him," Us' source said.
The re-engagement news comes after an E! report that claims the duo will be married by the end of 2016.
"They always stayed in touch and never got over each other. They would text each other or email from time to time just to check in. Liam has always been Miley's No. 1 and she was hoping for this," a source says. "They needed time apart to realize how much they love each other and want to be together. It happened slowly over time. One conversation led to another. It wasn't something that happened overnight. They are both a little bit older and wiser now. They've lived a lot in the last year few years and think things will be different."
The source continued, "They are like yin and yang. Liam is so laid back about everything and he really mellows Miley out. But he gets her wild side too and he admires how fun and exciting she is. There's never a dull moment with Miley and he doesn't try to challenge her."
The insider continued, "She likes the way she feels about herself when she's with him."
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