In an effort to clarify the formation mechanism of LPSO structure in Mg-Y-Zn alloy, the chemical environment and structural ordering in liquid Mg-rich Mg-Y-Zn system are investigated with the aid of ab-initio molecular dynamics simulation. In liquid Mg-rich Mg-Y alloys, the strong Mg-Y interaction is determined, which promotes the formation of fivefold symmetric local structure. For Mg-Zn alloys, the weak Mg-Zn interaction results in the fivefold symmetry weakening in the liquid structure. Due to the coexistence of Y and Zn, the strong attractive interaction is introduced in liquid Mg-Y-Zn ternary alloy, and contributes to the clustering of Mg, Y, Zn launched from Zn. What is more, the distribution of local structures becomes closer to that in pure Mg compared with that in binary Mg-Y and Mg-Zn alloys. These results should relate to the origins of the Y/Zn segregation zone and close-packed stacking mode in LPSO structure, which provides a new insight into the formation mechanism of LPSO structure at atomic level.