The Reds came racing out of the blocks and took an early lead through Raheem Sterling's silky finish, then doubled their lead as Martin Skrtel headed home from a corner.
City's David Silva grabbed a second-half brace in an attempt to lead his side to a remarkable comeback victory, but it was Philippe Coutinho who scored the winner for the home side.
Brendan Rodgers made no changes to the side that triumphed at West Ham 2-1 the week before, but whereas usually an unchanged side represents solidity and safety, the Reds' approach was beyond risky—bordering on reckless.
They went with the diamond that has served them so well over the last two months, placing Steven Gerrard at the base, Sterling at the tip and Coutinho and Jordan Henderson either side.
The formation lacks any sort of natural width—though can create it in multiple ways via clever movement and rotations—and there were concerns pregame over how susceptible the system was to overloads in the wider areas.
City lined up in a wide 4-2-3-1 with Jesus Navas offering great width on the right one vs. one with Jon Flanagan, and on paper, any overlaps from the marauding Pablo Zabaleta go unchallenged.
The same applied to the left with Gael Clichy outside of Samir Nasri, but Rodgers' aggressive, hard-nosed game plan prevented City from working any possession-based opportunities for a full 45 minutes.
Liverpool, as a team, ran direct and hard at City's defence, testing the half-fit Vincent Kompany's turning circle and tempting Martin Demichelis out from the line.
The pressure created by Luis Suarez, Daniel Sturridge and Sterling was absolutely relentless, and their advanced positioning and direct sprints made life uncomfortable for the visitors all day. As a result, Zabaleta and Clichy stayed "honest," fearing a three vs. three should they venture forward and therefore staying back in a straight line of four.
Sterling then began vaulting forward from his loose No. 10 position after Suarez and Sturridge had split wide, breaching the space beyond the centre-backs and inside the full-backs. The first goal came from a Suarez through ball after he'd peeled off to the right and slotted it beyond the ailing Kompany to score.
If Sterling dipped out of his position or was dragged wide, Coutinho pushed forward and replaced him at the tip of the diamond. With Yaya Toure limping off injured and the slow, immobile Javi Garcia replacing him, things got worse for Manuel Pellegrini before they got better.
The Reds continually looked for a killer pass and, when doing so, committed at least three runners into space or over the top every time. That's four or five attacking the final third with each foray forward, leaving Gerrard mightily exposed in defensive midfield.
That's why the strategy can be deemed bold but ultimately risky, as Rodgers decided to rely on intense pressure, pressing and aggressive positioning as a defensive mechanism as opposed to a settled system or shell.
It unraveled in the second half.
Navas wasn't being forceful enough in engineering overloads on the right flank, and Pellegrini knew it; a straight swap for James Milner, who's far more aggressive and physical when pushing forward with the ball at his feet, then unlocked the key to City's comeback.
The Englishman immediately began running straight at Flanagan and found joy quickly, executing a one-two, entering the box and laying it on a plate for Silva to tuck home his first. City's passing became noticeably firmer too, pushing passes into the right-hand channels as if suggesting "we will play this ball."
City went straight back to Milner and engineered another chance, then switched played to the left and equalised on the other flank after a Nasri-Silva interchange.
Twelve minutes after Milner had entered the fray, City were level and looking good to score a third. Rodgers' aggressive positioning of his players was starting to lose its effectiveness, and it began forcing Gerrard into lung-busting runs toward his own box in order to halt attacks.
Hindsight is a wonderful thing, but it's easy to say now that Rodgers should have made the move to the 4-3-3 after securing a two-goal cushion, rather than waiting for his side to lose momentum.
He did so at 2-2, swapping Sturridge for Joe Allen, shoring up the midfield and pushing Coutinho out to the left. The game could have easily ended a stalemate, as both midfields matched up three vs. three and neither side could find a permanent overload to exploit.
Kompany's error, allowing Coutinho to sweep in and score late on, decided the game in favour of the hosts, and on this occasion, Rodgers' brashness was rewarded.
Ten wins in a row, Rodgers will retain the perceived Midas touch. In truth, though, this was very, very close to going wrong.