He exercised his right to a free transfer despite the offer of a new contract at Elland Road, but if Davies wanted to sign him the Rams would have to pay compensation, as he is under the age of 24.
Since taking charge at Pride Park last week, Davies has come out with the usual slant of assessing his current squad before making any purchases, but the chance to sign a player he rated when Preston boss could prove too tempting.
Pugh was Kevin Blackwell's first signing as Leeds manager.