The Magpies have now taken four points off City in the last two meetings.
Story of the game
Raheem Sterling opened the score after 20 minutes after pinball in the box.
Jetro Willems equalised five minutes after some great interplay.
After 82 minutes Kevin De Bryune fired the visitors back ahead.
With two minutes left to play, Jonjo Shelvey curled an effort into the far corner.
It took 18 minutes for the first opening and it was Fernandinho who lost his marker from a corner but fired a free header fizzing over the bar.
One minute later Jonjo Shelvey curled a free-kick into the side netting from 20-yards which had Ederson scrambling across his line.
The Champions took the lead after 20 minutes as they benefited from three rebounds off Newcastle players before Sterling smashed home from 10-yards.
Newcastle levelled things up with a goal the visitors would have been proud of.
Allan Saint-Maximin played a one-two with Miguel Almiron before playing the Paraguayan through who saw the onrushing Willems arrive in the box before the full-back smashed his effort into the bottom corner.
After 55 minutes City sprung a counter-attack which ended up with De Bryune cutting in from the left but ballooned his shot well over the bar.
Two minutes later David Silva dinked a cross to the back post for Gabriel Jesus to nod into an empty net but he could only head wide from two-yards.
Sterling played a number of quick passes to Jesus on the edge of the area before one-on-one with Martin Dubravka only for Ciaran Clark to slide in the box and intercept the ball.
After 67 minutes De Bryune found himself unmarked in the box and from a tight angle tried to find the bottom corner but Dubravka was equal to it.
A minute later saw Jesus slipped through one-on-one and again Dubravka stood tall to make a stunning save and keep the Magpies level.
With 18 minutes left to play, City had two golden chances to take the lead, first through Phil Foden who mistimed a free header from six-yards wide.
That was before Bernardo Silva was free in the box but snapped at his shot which dragged aimlessly wide of Dubravka's far post.
Paul Dummett cleared a cross out the box which fell to De Bryune who took one touch before smashing a volley into the top corner leaving Dubravka with no chance.
Christian Atsu looked to curl a free-kick into the box before playing short to Shelvey on the edge of the box as the captain sent a curling effort past Ederson and into the far corner.
St James' Park erupted with players, fans and coaching staff not believing what they were seeing.
Allan is key
Everything good from Newcastle comes down the left-hand side through Saint-Maximin and Willems.
They are a constant threat and give full-backs a torrid time, even Kyle Walker, one of the quickest in the league struggled with the Frenchman.
If the Magpies are to stay up this season they will need Saint-Maximin to stay fit and maintain the performance levels he has shown thus far.
City look sluggish
The champions were not at their best at St James' Park despite enjoying a huge chunk of possession.
They sent a lot of passes wayward and failed to penetrate a Newcastle side with much less quality.
They will have to certainly up the tempo for the remainder of the season if they want any chance of catching Liverpool.