Goals from Ilkay Gundogan, Raheem Sterling and Phil Foden handed City a five point advantage at the top of the Premier League table, with Liverpool now 10 points adrift of the league leaders, who remain in fourth.
Story of the Match
Manchester City came to Anfield without a win at the Merseyside ground since 2003 but knowing that, given the two sides form heading into the clash, they might never have a better chance to break that duct.
Both sides made changes ahead of the game, Allison, Fabinho, Jones and Mane returned for the hosts, whilst Zinchenko and Foden came in for the Citizens.
It was City who dominated the ball in the early stages of the contest, but failed to create any real openings through the opening 15 minutes.
As the game wore on, it was the hosts who took control of proceedings, with Sadio Mane sending a close range header over the bar before Roberto Firmino stung the palms of Ederson with a fierce effort from range.
The key moment of the half came just after the half hour mark.
Sterling picked up the ball on the left flank and drove towards goal before being brought down by Fabinho. Michael Oliver had no doubts as he pointed to the spot.
The inform Gundogan stepped forward to take the spot kick, but he blazed his effort high and wide as City yet again failed to convert from the spot against Liverpool.
It was the third consecutive penalty that Manchester City had put wide against Liverpool, as the two sides headed into the sheds with the deadlock still intact.
Whilst the first half was largely passive, the second 45 was anything but.
Manchester City came out quickly in the second half and soon found themselves in front, Gundogan atoning for his first-half penalty miss by tapping home from close range after Allison had denied Foden's initial effort.
Liverpool weren't setback by the concession though, and they soon found themselves level via the penalty spot after the most uncharacteristic of errors from the usually dependable Ruben Dias.
The Portuguese defender allowed Mo Salah in behind before tugging at his arm to give Oliver no choice but to point to the spot. The Egyptian stepped up and smashed the ball past Ederson to level the affairs.
The visitors thought they had retained their lead on the 70-minute mark as John Stones turned Foden's deep cross home, but the assistant's flag cut the City celebrations short.
Then came the games turning point, a disaster spell from Alisson.
The Liverpool keeper's attempt to play the ball out from the back fell to Foden who did expertly to cut inside and put the ball on a plate for Gundogan to grab his second of the night from close range.
And if once wasn't bad enough, the Brazilian did it again.
This time playing the ball to Bernardo Silva on the left flank, with the City man biding his time before lofting the ball over Alisson to allow Sterling to head the ball home and pick up his 100th goal of the Pep Guardiola era.
Foden added the icing on the cake with ten minutes to go, cutting inside from the left flank before firing an unstoppable effort into the roof of the net to bag himself the goal that his performance deserved.
It ends a run of 18 games without a win at Anfield for Manchester City, who may have just struck the final nail in Liverpool's title coffin.
City's title to lose
If it wasn't already, the title is now well and truly in Manchester City's hands.
The Citizens are on a record breaking 14-game winning streak and, with a squad depth unmatched in the Premier League, it looks inevitable that the title will be heading back to East Manchester in May.
Phil Foden is magic
Phil Foden started in a false nine role at Anfield, and once again proved why he is one of the hottest young talents in the world.
The 20-year-old was at the heart of everything City did right during the 4-1 win, with his goal the pick of the bunch on the evening.
Many had questioned Pep's decision to ease him into the squad, but nobody will be questioning it now!