Spain made it to the final on Sunday in New Jersey by beating tournament favourites, France 2-0.
France was tipped to reach the final as the leading team of the World Cup, yet they were outperformed by Spain.
Luis de la Fuente’s Spain will now face Argentina in the final on Sunday after the defending champions staged a comeback to defeat England in the second semi-final.
Souness, a former Premier League manager, highlighted how tough Lionel Messi and his teammates could be but still believes that Spain can go all the way.
He said on Football Uncensored, “I think it’s a hard one to call. We’ve seen what Argentina are about.
“At the start of the game they try to niggle you into thinking about different things rather than concentration on your game.
“Spain, for me, are the favourites but I find it really hard to rule out Argentina because they can dig deep, you write them off at your peril.
“I put Spain as the slight favourites but having played against plenty of Argentinian players, I know how mentally tough they are. They are proper footballers from a tough nation.
“I believe it will be a closely contested match, making it quite difficult to predict the outcome.”
Argentina are striving to secure their fourth World Cup title, aiming to become only the third nation to successfully defend the trophy.
On the other hand, Spain is seeking to achieve their second championship after their initial World Cup win in 2010.
The two teams that lost in the semi-finals, England and France, will face each other in a lackluster third-place playoff on Saturday.