It is not unusual to ask for LinkedIn recommendations from people you are currently working with. Whether or not that raises a flag depends on your specific situation.
If you have concerns you can partially address them by turning off your "activity broadcasts" in your LinkedIn profile. This way, your network won't get emails as you update your profile but anyone who deliberately visits your profile will see the new stuff.
You said yourself that the project has less work to do, and so is presumably winding down to a finish. Right now (while memories are still fresh) is the best time for getting recommendations from people and updating details about the project for your resume and for LinkedIn. If anyone has concerns about this you can address them by indicating that you're just keeping your profile up-to-date. Even so, if there's less and less work to do, anybody working there would have to be naive to think that people aren't at least starting to think about the future.
In general, regular updating of LinkedIn and your resume is good practice. This way, you can reap the benefits of being up to date even if you're not looking actively. Lots of very successful people "find" jobs when they're not looking because they have an active and well-maintained network (this is true for LinkedIn as well as more informal networks of people who know each other).