John Stones opened the scoring midway into the first-half before Ilkay Gundogan curled past Vicente Guaita shortly after the interval.
Stones secured his double, and his first two goals for The Citizens in the Premier League, before Raheem Sterling put Palace to the sword with a wonderful free-kick.
The first-half started off slowly for both sides until the deadlock was broken after 26 minutes. Kevin De Bruyne curled a wonderful cross, with the outside of his foot, to an unmarked Stones who headed home.
Palace struggled to create any clear cut chances in the first-half but managed to stay resolute and go in at half-time only a goal down.
The onslaught began a few minutes after the restart with a wonderful strike from Gundogan, who has now scored four goals in six Premier League games.
The game was slipping further away from the Eagles. Their fate was sealed when Stones' swivelled shot denied any chance of a comeback. Sterling curled a free-kick past a helpless Guaita to put the pressure on league leaders Manchester United.
Kouyate and Zaha hugely missed
Before the game, fans were shocked to see that Cheikhou Kouyate and Wilfried Zaha were out of the squad to face Man City.
However, it is rumoured that Zaha missed out due to a knock picked up in the 0-0 draw with Arsenal on Thursday - whilst Kouyate was absent due to a family issue.
Palace did not look assured at the back as they have done in games against Arsenal, Leicester City and Sheffield United. The Eagles struggled without their talisman Zaha, and arguably their best centre-back of the season so far, Kouyate.
Without Zaha, creativity was stagnant, despite the attempts of Eberechi Eze for most of the game. The Ivorian should be fit for the game against West Ham on the 26th January and Palace will need to perform far better to get anything out of that game.
Individual errors cost the Eagles
Despite the unpredictable outside of the foot cross from De Bruyne, the marking of Stones in the area should have been much better. Gary Cahill or James Tomkins had to take responsibility to follow Stones and he was left unmarked for the headed opener.
For the second goal, Townsend has to clear his lines, instead of trying to bring down a high ball. It certainly looked more difficult to control the ball and look for a pass rather than hit the ball up the pitch.
The third goal was avoidable, poor marking and slow reactions to the loose ball allowed Stones to smash home. Sterling's goal was the only unavoidable goal of the night; as nothing could have been done to stop that effort.
Opinion: Benteke should have started instead of Ayew
Jordan Ayew started the game off well, however, as soon as City got the first, he was largely ineffective for long periods of the game.
The Ghanian had a chance in the first-half when he should have hit the ball first time but instead, he took a touch and the chance was gone. His hold-up play was not the best and it did not improve for Palace until Michy Batshuayi came on as a substitute.
His menacing presence in the air would have done wonders against City, who are not the biggest team in the Premier League. Benteke's hold-up play could have brought the likes of Eze and Townsend into the game more. Perhaps, with this added impetus, the game may have been a different story?
Eze needs to play behind the striker
The former QPR forward was wasted today on the left-wing. Playing behind the striker is the position for him to create chances and against City, he had to try and help Tyrick Mitchell, which nullified his threat.
The absence of Zaha was a big factor for his woes, however, Palace would have got more out of him if he played behind Ayew; who was isolated for large periods of the game.
With West Ham United coming up on the Tuesday after next, Palace will be looking to get back to winning ways - but it will not be easy against an in-form side.
Eze and Zaha must be partnered in order to get a good result and push themselves higher up the table.