This story has been reproduced from today's media. It does not necessarily represent the position of Liverpool Football Club.
A phenomenal Sergio Aguero strike stole the hosts a draw, but they are now nine points adrift of Manchester United in the title race.
Liverpool boss Brendan Rodgers hailed Aguero's audacious 79th-minute strike as an "unbelievable" goal, but an equaliser was not enough for City, whose status as champions looks to be coming to an end.
City may have closed an eight-point gap with six games to go last season to snatch the title from Manchester United on the final day, but there seems little chance of them repeating that feat.
While United continue to win and tick the games off, City stuttered to a second successive draw to lose further ground on their local rivals, who seem in complete command of their fate this time around.
Roberto Mancini spoke of his belief that United's upcoming Champions League tie against Real Madrid may see Sir Alex Ferguson's side lose some of their focus domestically.
But City are not playing well enough right now to take advantage, even United were to suffer a title race wobble, with four points dropped in the space of five days seeing them slip further behind.
Liverpool played with a verve and intensity that belied their recent problems, in particular their humiliating FA Cup exit to Oldham, and in Daniel Sturridge and Steven Gerrard had the game's two outstanding players.
City set the tone for a thrilling game as early as the first minute, Pepe Reina tipping a dipping long-range effort from David Silva over the bar, as Mancini's men looked to make an immediate breakthrough.
But it was Liverpool who fashioned the most promising openings, Daniel Sturridge using his pace and guile to maximum effect against his former club, whom he showed no mercy throughout.
Sturridge should have put the visitors ahead in the 13th minute, when City keeper Joe Hart misjudged a hopeful punt forward from Glen Johnson, leaving the City goal exposed.
Quite why Sturridge did not take the ball on his favoured left foot, only he knows, but it afforded Pablo Zabaleta, City skipper in the absence of Vincent Kompany, enough time to block his effort.
Sturridge caused anxiety in the City defence whenever he was in possession and gave them palpitations once again in the 20th minute when he outpaced Matija Nastasic down the left flank.
Luis Suarez was the recipient of Sturridge's delivery, but on this occasion the prolific Liverpool striker's accuracy deserted him in front of goal as he skewed his shot wide of the target.
Suarez squandered another chance a minute later, cutting inside from the right, only to drag his effort wide, as Liverpool found their rhythm and began to put City under sustained pressure.
But it was City who took the lead in the 23rd minute, the home side exploiting Liverpool's defensive vulnerability with a goal that was swift and ruthless in its build-up and execution.
David Silva funnelled the ball through to James Milner, who broke free down the left side and steered the ball across the face of the six-yard box for Edin Dzeko to apply an assured finish.
Yet Dzeko went from hero to villain in the space of seven minutes as Liverpool equalised with the City striker lying on the ground, claiming to be in need of treatment, after a challenge from behind from Daniel Agger.
With ref Anthony Taylor having decided Agger's challenge was legitimate, Liverpool continued to play on, despite Dzeko lying prostrate on the turf and the home crowd voicing their dissent at the perceived unsporting nature of the visitors.
That dissent turned into outright mutiny when Liverpool's refusal to kick the ball out yielded a goal, Sturridge drilling a majestic shot beyond the reach of Hart, his goal celebration muted in reverence to his former employers.
City were furious that Liverpool had played on, but their ire should have been aimed at Dzeko, who sprang to his feet after Sturridge had scored, his feigning of injury ultimately costing his team a goal.
Dzeko's actions saw his team-mates stand-off Liverpool, with Mancini's players no doubt waiting for their opponents to relent, their hesitancy and uncertainty punished with the concession of the goal.
Liverpool were deserving of their equaliser, having shown more purpose and penetration than City, and continued to put the champions under pressure after the break, with Sturridge their chief tormentor.
The only moment Sturridge put a foot wrong all afternoon was when he took a needless dive after once again getting the better of Nastasic, with whom there was the slightest of contact, a transgression punished with a yellow card.
The visitors took the lead in the 73rd minute, through a trademark long-range strike from imperious skipper Gerrard, who took full advantage of Gael Clichy's unconvincing clearance, beating Hart with an unstoppable dipping shot on the half-volley.
Liverpool could have extended their lead five minutes later, when Sturridge flicked on an inswinging free-kick from Gerrard with a glancing header, the ball spinning just wide of Hart's far post.
There was more drama to come with 11 minutes left through Aguero's moment if individual brilliance, the City striker seizing upon a mix-up between Reina and Martin Skrtel, who had only been on the pitch a matter of minutes.
With Skrtekl having left his goalkeeper to contend with the ball, Reina raced from his goal but was always going to be second to it, Aguero producing a instinctive first-time shot to score from the most outrageous of angles.
Sturridge almost won the game for Liverpool in the 90th minute with a low strike from the edge of the area but it was third time lucky for Hart, who palmed the ball away, having already been beaten by two long-range efforts.
Yet a draw was not enough in a game from which City had to take maximum points to keep up the semblance of pressure on United, who inched ever closer to title No.20.