The 23-year old scrum half has joined the Old Deer Park outfit until the end of the season, with a view to getting more game time under his belt.
Elite Performance Director, Andrew Hore, said:
"We have arranged this move to allow Liam the chance to be playing more regular rugby at a good standard. He's not registered in our Heineken Cup squad, and at the moment he is faced with the situation where Jamie Nutbrown and Mike Phillips are both returning from injury and will need to get game time, while we also have Rhys Webb available to us.
"It makes sense for us to look to place Liam somewhere he will get the exposure that he needs to continue his development. Unfortunately, none of the other regions currently require a scrum-half, so we have had to go outside of Wales, but we feel that a spell on loan at London Welsh in the Championship will prove to be very beneficial for Liam.
"He fully understands the reasoning behind the loan, knows that he remains in our long term plans, and that we will be monitoring his progress closely and will be in regular contact with him. The loan agreement includes a call back clause that can be activated at any time should his services be required by the Ospreys. From speaking to him about the loan, I would expect Liam to use this opportunity to show us what he is capable of."
Davies has made four appearances for the Ospreys since signing from French Club Brive last summer, also turning out for Aberavon and Swansea in the Principality Welsh Premiership.
Speaking about the loan, former Wales U21 international Davies said:
"It's a positive move for me and I'm really looking forward to it. I'm still developing as a player so it's important that I'm playing regular rugby, and opportunities are going to be limited for me over the next few months with players like Mike and Jamie coming back. With that in mind, it'll be good to get some regular rugby under my belt at London Welsh, who play good rugby at what is quite a high standard in the Championship.
"It should be a win-win for the Ospreys and for me. The ideal situation for me will be that I can make a positive impact with London Welsh, and then hopefully, I will come back to the Ospreys for next season and really push for a regular place, something that hasn't happened for me here yet."
Guinness PRO12
Suite 208, Alexandra House,
The Sweepstakes
Ballsbridge, Dublin 4, Ireland