Liverpool's impressive six point lead over Spurs was cut to a four point lead over Man City after the festive season's major football clash.
Last season's Champions hosted this season's league leaders in what many had suggested could be a defining clash. A Liverpool win would have given them a 10 point lead over third placed Man City, and arguably have dragged the Manchester club into a fight to stay in the top four.
But fine margins separated the two clubs in a cagey affair, with a Leroy Sane winner for City settling the outcome.
Jurgen Klopp elected to play the standard 2017/18 midfield threesome of Henderson, Wijnaldum and the returning James Milner.
Chances were few and far between in the first half. But it was the reds who should have taken the lead.
Sadio Mane's shot rebounded off the post, with Ederson clawing at the ball and sending it back towards his own goal. John Stones made a vital clearance just millimetres before a goal would have been scored. His clearance narrowly went through the legs of the onrushing Mo Salah and kept the scores at 0-0.
With five minutes of the half remaining, Man City grabbed the opener.
From a tight angle, and brushing aside the attention of Dejan Lovren, Sergio Aguero drilled a shot into the roof of the net.
City started the second half the more dominant side, but Liverpool gradually increased their attacking intensity and Roberto Firmino grabbed the deserved equaliser. He headed in an Andy Robertson cross after the hour mark.
With both sides suddenly determined to grab the winner, it was Man City who broke quickly against a Liverpool attack. And Leroy Sane's shot in the 72nd minute rebounded off the post and into the goal.
This was a game that Man City could not afford to lose. The win does end Liverpool's unbeaten record this season, but the Anfield club remain with a 4 point lead at the top of the Premier League with both sides level on goal difference.
After the FA Cup 3rd round fixtures, the reds return to Premier League action with a trip to Brighton.