Victory left the destiny of the title, which they last won in 1990, in Liverpool's own hands as they went five points clear of second-placed Chelsea, away to Swansea later Sunday, and seven in front of third-placed City. Although City have two games in hand on both Liverpool and Chelsea, these can only yield a maximum of six points. (Click here for latest on football)
Liverpool's Philippe Coutinho sealed a 10th win in a row for Brendan Rogers' men 12 minutes from time after City had come from 2-0 down to draw level at 2-2.
First-half goals from Raheem Sterling and Martin Skrtel put Liverpool 2-0 up only for City to hit back after the break through David Silva and a Glen Johnson own-goal. (Matchcentre)
But Coutinho made it 3-2 in the 78th minute after seizing on a sliced clearance from City captain Vincent Kompany to beat England goalkeeper Joe Hart with a low shot from the edge of the box. (In Pics: How Liverpool outclassed Manchester City)
Liverpool had to play the closing minutes of stoppage-time a man down after Jordan Henderson was sent off for a wild challenge on Samir Nasri. (Also read: Sachin, Ganguly to own soccer teams in ISL)
Before kick-of, there was a minute's silence in memory of the 96 Liverpool supporters killed in a crush during a FA Cup semi-final against Nottingham Forest at Sheffield Wednesday's Hillsborough stadium on April 15, 1989.
Both teams wore black armbands and, in another tribute to the victims of the tragedy, matches across England were moved back by seven minutes this weekend, reflecting the moment the fateful match at Hillsborough was called off.
A memorial service is due to take place at Anfield on Tuesday, which will mark exactly 25 years since the tragedy.
This month saw a new inquest into the deaths of the Hillsborough 96 start in Warrington, east of Liverpool, after the original coroner's verdicts were quashed by the High Court in December 2012 amid claims of a police cover-up.