City took the lead through Bernardo Silva but conceded two in three minutes to turn the game on its head.
The turning point of the game occurred when Kevin De Bruyne, who has been out with injury all season, was introduced to the field.
Scoring a superb drilled effort five minutes after coming off the bench, he would go on to delightfully set up Oscar Bobb for a stoppage time winner, playing the Norwegian wonderkid in with a perfectly-weighted lofted through ball.
It was a cameo that would have certainly unsettled Liverpool fans, with City now just two points behind the current league leaders.
And Manchester United legend Rio Ferdinand believes Reds supporters have the right to be worried, believing that City are about to truly kick into gear.
Appearing as a pundit on TNT Sports, he said: "Pep Guardiola, very rarely do you see him as animated as he was today.
"I'll tell you one thing, that man there [De Bruyne], you're back; you are back. You are the jewel in the crown; you're back.
"Watch momentum kick in now and these guys know what to do.
"These guys know when to put the pedal to the floor and it looks like now, everybody [Liverpool and Arsenal] is going to be looking over their shoulders and looking around and saying, 'They are coming'.
"They know how to get the job done. They have the experience, the depth, the class, the quality and the firepower. Formidable."
Following a weekend off for the winter break, the Reds are back in action next Sunday against Bournemouth as they look to defend their position at the top of the table.