Mohamed Salah gave the visitors the lead in the East Midlands however the Foxes produced a stunning period of three goals in seven minutes to turn the game on it's head.
James Maddison was able to find the equaliser after a VAR check before a moment of madness from the Reds' defence allowed Jamie Vardy to score an easy tap-in before Harvey Barnes killed the game off with five minutes to play.
Story of the match
Schmeichel at the rescue
Jurgen Klopp's side dominated the proceedings as they looked to make amends for their heavy defeat at home to Manchester City last weekend and came the closest to going in front at the King Power Stadium.
The opening half-hour saw Leicester struggle to even get out their own half and on his 100th consecutive top-flight appearance, it was captain Kasper Schmeichel who was the busiest for the Foxes.
The Denmark international was able to make a strong right-hand save to deny Roberto Firmino from point-blank range.
It took the home side 35 minutes to conjure up their first real effort, after a floated ball into the box found the head of Jamie Vardy, but his cushioned header easily fell into the arms of Alisson.
Vardy comes close
In a half of few opportunities, Leicester arguably had the best chance to go in front on the verge of half-time.
A hopeful long-ball forward split open the Liverpool defence and allowed Vardy to run in on goal, however in a situation where he is normally deadly, the 34-year-old could only hit the crossbar.
Crossbar denies Liverpool
Similarly to the way the first 45 went, the second-half saw Liverpool start the better out the two teams.
After winning the foul on the edge of the box, it was Trent Alexander-Arnold who stood over the free-kick, looking to test Schmeichel from range. The right-back unleashed a curling effort that flew over the wall, however the crossbar prevented the Reds from going 1-0 up.
Lacklustre Foxes pay the price
Leicester lacked any real urgency for large spells of the game and were made to pay for it in the 67th minute as Liverpool took a deserved lead.
A long ball from Youri Tielemans was cut out by Alexander-Arnold who's long-range effort was blocked and after some good work by Firmino to hold the ball up he was able to skilfully lay the ball off to Salah as he wrapped his left-foot round the ball to find the bottom left-corner of the net.
The goal was the Egyptian's 17th of the season as he now moves four clear at the top of the goal-scoring charts.
Dramatic turn around gives Leicester the lead
With Liverpool in control, Leicester needed to find a way back into the game and after Harvey Barnes was fouled on the edge of the box, VAR confirmed that it was in fact a free-kick despite referee Anthony Taylor initially pointing to the spot.
James Maddison took advantage to score the free-kick and once again after VAR had originally intervened, the decision was reversed and the goal was given.
A full turn-around was then completed just two minutes later as a long-ball from Tielemans caused panic between goalkeeper Allison and his centre-backs, allowing Vardy to run through on goal unchallenged and score his first goal in seven games.
Barnes wraps the game up
In a game which had saw Liverpool dominate for so long, their hard-work had come undone as the Foxes found the net for the third time in seven minutes through Harvey Barnes to make sure of the three points.
Some good work from substitute Ayoze Perez to intercept the ball allowed the Belgian Tielemans to pop the ball off to Wilfred Ndidi.
The Nigerian then sent the ball forward to Barnes who used his pace to drive in the box before opening up his body to curl the shot into the far-right corner and confirm a vital win for Leicester.
Liverpool lacking confidence
For 79 minutes it would have been hard to argue anything other than a Liverpool win, but from the moment Maddison found his 10th goal of the season, the confidence sapped from the Reds.
The side that looked so strong last season looked like they had lost all belief in themselves the moment Leicester had equalised and after being made favourites to retain their Premier League crown at the start of the campaign, they now face a real battle to ensure they finish in the top four.
Wilfred Ndidi is Leicester's most important player
Many of the headlines will be about the goals from the Leicester frontline and the capitulation of Liverpool but the performance of Wilfred Ndidi was monumental in the Foxes victory.
The defensive midfielder covered all areas of the pitch and failed to give the Liverpool attacking line a moment to themselves.
Without the 24-year-old, Leicester would have been overrun in the centre of the park and his display was worth of any man-of-the-match award and proved once again, he is the most important player for the Foxes.
Foxes are up for the fight
This time last season was just around the point that the wheels began to fall off Leicester's top-four push, but this time around, the spirit in the camp seems different.
In previous years, we've often seen Leicester fold under the pressure when falling a goal behind, but today showed a different sort of spirit.
Despite the poor form of the away side, they still remain a dangerous threat but the Foxes proved they were up for the fight and this season and ability to turn a loss into the win will only further strengthen the belief that they can qualify for the UEFA Champions League this season.