Manchester City reignited the Premier League title race as they ended Liverpool's 20-game unbeaten start to the season to reduce their lead at the top of the table to four points.
Pep Guardiola's hosts knew nothing less than a win at Etihad Stadium would do on a Thursday night riddled with tension that produced a game that was frenetic if not a classic.
Leroy Sane produced the decisive moment 18 minutes from time as he collected Raheem Sterling's pass to fire across Liverpool goalkeeper Alisson, after it had seemed like Roberto Firmino's stooping header would maintain the visitors' unbeaten sequence.
Sergio Aguero had earlier given City the lead with a rising, near-post drive just before the interval.
That came after a moment of drama when Reds forward Sadio Mane hit the City post and John Stones scrambled the ball off the line after his attempted clearance struck goalkeeper Ederson - with data subsequently showing the ball had failed to cross by just 1.12cm.
Both sides had chances in a frantic finale but it was City who claimed a crucial win.
Man City deliver required response
Guardiola was blunt before the biggest Premier League game of the season: anything other than victory was not an option.
And while City did not produce the purist style that is their trademark, they dug deep to get the job done despite some late moments of panic in their penalty box and wayward finishing in the other.
City were in danger of falling off the pace following three recent losses that allowed Liverpool to open up an imposing advantage - and that was why the stakes were so high amid a crackling atmosphere.
It was master marksman Aguero who made the crucial breakthrough with a brilliant near-post finish, thinking and moving quicker then Dejan Lovren to beat Alisson.
City also showed real strength of character to respond just as the momentum Liverpool were generating from Firmino's leveller threatened to take the game away from them.
And at the heart of it all was the magnificent Fernandinho - a man seemingly irreplaceable among the City's stellar cast - as he delivered a masterclass of controlled midfield play to steady his side when required.
It should be said, though, that the hosts enjoyed a measure of good fortune when leniency from referee Anthony Taylor allowed captain Vincent Kompany to escape with only a yellow card for a reckless lunge at Mohamed Salah after he had been played into strife by Stones.
But this was a huge night for City and Guardiola and they emphatically answered the questions that have been levelled at them.
It was also a victory achieved without needing to call on the brilliance of Kevin de Bruyne. The sight of the Belgium midfielder as an unused substitute was an indicator of the strength still to come from the champions.
They can now look upon a reduced Liverpool lead and believe they have very much kept alive their hopes of retaining the title.
- 'Man City show substance as well as style in crucial victory'
- 'Every game is a final' says Guardiola after 'good result for the Premier League'
- Football Daily: Title race back on as Man City beat Liverpool
Liverpool still in pole position
Liverpool's disappointment was clear as manager Jurgen Klopp and his players trudged off at the end of their first league defeat of the season - a result that backed up Klopp's insistence that this title race has a long way to run.
The Reds were not at their intense best, although they can look back at Mane hitting the post and several other scrambles as key moments that went against them.
They will be disappointed at the manner of City's opener as Aguero, with a brilliant finish, preyed on the fatal hesitation of Lovren, who had a thoroughly forgettable night.
Yet once the frustration subsides, Liverpool can reflect on a superb start to the season that has left them with clear daylight at the summit - something that looked so unlikely just a few weeks ago.
They are still in the position everyone wants to occupy.
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Man of the match - Fernandinho (Man City)
'If we lose it is almost over - every game is a final'
Manchester City boss Pep Guardiola, speaking to BBC Sport: "I am proud of them, but not just today. We lost two games in four days but you can't forget what they have done for 16 months. We knew that it was a final today, if we lose it is almost over.
"All credit to these incredible players. That is how we have to play in the Champions League. Both teams tried to search for each other, we were not scared, we had no fear and we had a lot of pressure.
"They are leaders - it is four points but we have reduced the gap. We knew that if we won we would be in contention to fight for the Premier league, if we lose it is over.
"I don't remember a league so tough, there are so many huge contenders fighting for the title. Every game is a final."
Liverpool boss Jurgen Klopp, speaking to Sky Sports: "It was a big pressure. Very intense game. We were unlucky in our finishing moments. Unluckier than City I would say.
"They had periods where they dominated the game and everybody felt the intensity. But we came back and had big chances. It is always like this. You have to score in those moments. When Aguero scores there is no angle. In similar situations we didn't score.
"It was not our or City's best game because we both made it difficult for the other team. I have already said to the boys this is OK. We lost it but it will happen. Tonight it is not nice but it is not the biggest problem."
The stats - Aguero loves facing the 'big six'
- Manchester City ended Liverpool's unbeaten start to the Premier League season in the 21st match - only Arsenal in 2003-04 (38 games), Manchester United in 2010-11 (24) and Man City in 2017-18 (22) have had longer unbeaten starts.
- This was only City's second win in their past 12 matches against Liverpool. They have lost seven of those but won at the Etihad in the league for the past two seasons.
- Since the start of the 2011-12 season, Aguero has scored 37 league goals for City in matches against the other 'big six' clubs (Arsenal, Chelsea, Liverpool, Manchester United and Tottenham) - 16 more than any other player.
- Liverpool have lost 10 of their 25 games under Klopp in January (winning eight), which makes up 29% of his 35 defeats as Reds boss.
- Since the start of last season, Sane has been involved in 26 goals in 25 home league appearances for Manchester City (nine goals, 17 assists).
- Firmino scored his 10th goal of the season for Liverpool, registering double figures for the fourth consecutive season (11 in 2015-16, 12 in 2016-17, 27 in 2017-18).
- The Reds conceded more than once in a Premier League game for the first time since drawing 2-2 at West Brom in April.
- Manchester City won a league match against a team starting the day top of the table for the first time since winning 2-1 against Liverpool in December 2013.