The home side scored two quick-fire goals through David Silva and Gabriel Jesus, before Shinji Okazaki struck to give the Foxes hope at the end of the first half.
The visitors scored a penalty late in the game through Riyad Mahrez but it was correctly ruled out by the referee to give the Citizens a hard-fought win on a competitive afternoon in Manchester.
City cruise again but Foxes bite back
Pep Guardiola started an unchanged line-up to the team that mauled Crystal Palace 5-0 last time out. Elsewhere, there were two alterations seen to the Leicester City team. Andy King and Ben Chilwell replaced the injured Danny Drinkwater, who is out for the rest of the season, and Robert Huth. Christian Fuchs slotted in at centre-back in the German's absence.
Both sides had the chance to edge ahead early in the first half. Fernandinho, again playing at right-back, headed over from a corner before Wilfred N'Didi followed suit and nodded high over the cross-bar from a Foxes' corner kick.
The Citizens though did not have to wait long to seize the initiative. An excellent pass from Yaya Toure found Leroy Sane in acres of space on the left side. The youngster cut the ball back to David Silva who slammed the into the net from just inside the area. Leicester were not happy though and remonstrations that the shot had got a touch off of Raheem Sterling when in an offside position fell on deaf ears.
Manchester City's advantage was doubled only seven minutes later following great work from the electric Sane. Weaving through various challenges, the ex-Schalke 04 man tore down on Kasper Schmeichel's goal. However, a clumsy challenge from Yohan Benalouane saw Sane fall to the floor and referee Bobby Madley point to the spot. Gabriel Jesus stepped up and stroked the ball into the bottom corner to notch his fifth Manchester City goal.
With the first half drawing to a close, the Foxes dragged themselves back into the game. A teasing cross from Marc Albrighton on the Leicester left found Shinji Okazaki in space in the box. The Japanese international then struck home a sumptuous volley to give Craig Shakespeare's side hope and end a long personal goal drought.
Injury worries worsen for Leicester as Mahrez takes centre stage
Marc Albrighton then had the best opening of the second half to equalise for the visitors. Meeting a Jamie Vardy cross, the former Aston Villa man swung his boot at the ball but it appeared to spin up off his shin and kindly into the arms of Willy Caballero.
In a second half of relatively few chances though, Craig Shakespeare's squad became even thinner. Sustaining an innocuous leg injury, Andy King had to be replaced by Daniel Amartey.
Leicester then had a wonderful opportunity to draw level. Riyad Mahrez twisted Gael Clichy inside and out and tripped over following a poor challenge in the box from the Frenchman. The Foxes were then awarded a penalty of their own. Mahrez himself stepped up struck but the goal was ruled out amidst celebrations from the away end. Replays showed that as the Algerian slipped, he kicked the ball twice as he took the penalty and Guardiola's side were awarded a free kick.
Shakespeare's side continued to press throughout the remaining minutes but City stood firm to earn an extremely hard-fought victory. As a result, Guardiola's team moved up to third in the Premier League table, two points clear of Liverpool.