The England striker handed his side the lead after just three minutes in front of the Kop end at Anfield, firing in from Riyad Mahrez’s square pass as Claude Puel's side capitalised upon sloppy possession.
But despite holding out their lead until half-time having been on the back foot, in-form winger Mohamed Salah's second-half brace reversed the score-line.
Leicester pressed for a late equaliser but despite making Liverpool's defence and the home supporters anxious with a few promising attacks, could not rescue a point.
The Foxes are winless in five games across all competitions and have lost three of their last four league outings, but Vardy took some positives away from their defeat on Merseyside.
Striker prioritising points over goals
Speaking in the mixed zone after the defeat, Vardy reflected: "It's tough to take, the boys were digging in, fighting all the way to the end but today just wasn't to be.
"We have [got to lift our spirits] but we were fighting to the end so that shows you exactly what the boys are about, the spirit and the togetherness that we've got.
"We have to take that as a positive out of today's game and obviously take it into the next one."
Vardy has scored more goals against Liverpool than any opponent in his career with this latest one his seventh strike, having netted in all of his last five meetings with the Reds.
But he glumly declared: "I don't know [why I keep scoring against Liverpool] to be honest with you but I'd rather have not scored and got some points out of today I'll tell you that."
Despite their disappointing recent run, their form has undoubtedly improved since Puel was named as Craig Shakespeare's successor in October.
But although Leicester will end the calendar year in eighth place, contending for European football is not in their thinking just yet, says Vardy.
"First and foremost it's like any team, you need to make sure you get to the magic number to make sure that you stay in the league," the 2015-16 Premier League Player of the Season continued.
"Then after that you set yourself other targets and see where you can finish.
"Obviously we've not got the points today but going to the next game hopefully we'll pick the points up and then re-assess where we are and where we want to finish at the end of the season."
Vardy looking forward to Fleetwood return but focused solely on winning
Leicester turn their attentions to a New Year's Day clash with Huddersfield Town in the league, but following that they face Vardy's former club Fleetwood Town in the FA Cup third-round.
Vardy spent a single season with the Cod Army in 2011-12, scoring 31 goals in 36 Conference Premier appearances to inspire them to the title, finish the league's top scorer and earn the attentions of Leicester.
He joined the Foxes in a non-league record deal worth £1 million with his career since going on from strength-to-strength.
But he is relishing a return to his previous club, who are now in League One having progressed up the English footballing pyramid since Vardy's days leading the line at Highbury Stadium.
"It'll be a great day and a good atmosphere up there," the 30-year-old said. "It'll be a good experience getting to go back there. Obviously there's a few faces that I know from the past so it'll be good to see them as well.
"I think there's only one ex-team-mate left but it'll good to see Pondy [Nathan Pond] and there's staff still there.
"But we'll be taking it as it is every other game and making sure that we win and get through to the next round."