The match was overshadowed by anticipation of the pre-kickoff ceremonials after City left-back Wayne Bridge refused to shake the hand of former team mate and Chelsea captain John Terry because of Terry's alleged affair with Bridge's former girlfriend.
The crowd revelled in the histrionics, their jeers reaching a crescendo at the traditional lineup when Terry faced Bridge, his hand proffered and rejected.
The jeers followed the City defender whenever he had the ball but it was his supporters who had the last laugh as Chelsea's unbeaten run at home, stretching back to November 2008, ended.
Chelsea's defence marshalled by Terry looked jittery after Frank Lampard's 40th minute strike. A howler of a back header by John Obi Mikel gifted Carlos Tevez a goal just before half time.
"We lost our balance," a clearly rattled coach Carlo Ancelotti said. "It's the first time we have lost our balance like that."
City sensed Premier League leaders Chelsea's defensive frailty and scored three times on the break, the speed of Craig Bellamy proving the difference down the left wing.
Chelsea also lost discipline in uncharacteristic fashion, Juliano Belletti earning a straight red card for bringing down Gareth Barry in the area in the 75th minute for a penalty and Michael Ballack a second yellow for a crunching tackle on Tevez.
"We made a mistake. In football when you make a mistake you lose," Ancelotti said.
The Chelsea manager, whose side lost to former coach Jose Mourinho's Inter 2-1 in midweek in their last 16 Champions League first leg, refused to blame off-field distractions for the defeat.
"Manchester City were not distracted and we were not distracted," he said.
He was clearly irritated by continued questions over the Terry saga and refused to answer when asked whether the defender had the support of the dressing room, saying he was captain and would remain captain.
Terry was stripped of the England captaincy after the scandal gripped the nation, but enjoyed the chants of the Stamford Bridge faithful "there's only one England captain."
Ancelotti's compatriot Roberto Mancini, renewing a Milan rivalry with his opposite number, also refused to be drawn into the scandal. "I am pleased for Bridge's performance and that his team won," the City coach said.
He mused on the fickleness of a game that could produce a defeat for his side by Stoke in the FA Cup and a win at Chelsea in the space of a week.
"We were very motivated as it could change our season," he said. City are vying with Liverpool, Tottenham and Aston Villa for the coveted fourth place and a berth in the Champions League to justify high spending by their new Abu Dhabi owners.
Ancelotti, whose first eight months in charge have earned him the support of the Stamford Bridge faithful, may now be criticised for his substitutions, removing a lively forward in Joe Cole after City's second goal and inserting Daniel Sturridge who looked out of his depth.
He also removed defensive stalwart Ricardo Carvalho for the extra attacking option of Salomon Kalou.
