Despite having Gareth Barry sent off in the 73rd minute, first-half goals from Sergio Aguero, Yaya Toure and a second-half penalty from James Milner helped City, who had lost to Sunderland only two days ago, to a comprehensive victory.
They move to 48 points from 20 games, three clear of rivals Manchester United who have played one match fewer and six clear of Tottenham who had Jermain Defoe's clinical finish to thank for their victory at White Hart Lane.
City, who had gone two games without a win, were gifted the lead after only 11 minutes when Liverpool goalkeeper Pepe Reina let a snap shot from Aguero dip under his body and Toure added a second with a header before the break.
Liverpool, who have struggled for goals this season, were without striker Luis Suarez as he was beginning his eight-game suspension for racially abusing Manchester United defender Patrice Evra during a Premier League match in October.
The visitors were once again guilty of squandering opportunities with Stewart Downing failing to convert a one-on-one with City keeper Joe Hart and Dirk Kuyt unable to volley past City defender Vincent Kompany who made a good block to deny the Dutchman.
Chances were hard to come by in the second half, but Liverpool looked to have been given a route back into the match when City midfielder Barry picked up a second booking for a foul on the visitors' defender Daniel Agger.
FANTASTIC TEAM
Within two minutes, however, City had put the game beyond doubt when Toure powered into the Liverpool area and was brought down by Liverpool defender Martin Skrtel. Milner stepped up to hit the resultant penalty into the top corner.
"It was a difficult game and Liverpool are a fantastic team," City manager Roberto Mancini told Sky Sports.
"Liverpool played four days ago and we played two days ago. This is terrible for us. I think the first half we played well but maybe in the second half for 20 minutes we are tired."
Tottenham scored the only goal of the game with a typical finish from Defoe who was marked by three players when he received a cross from Gareth Bale, but managed to turn and place the ball past West Brom keeper Ben Foster.
Spurs came into the game without the injured Scott Parker and Aaron Lennon and were soon struggling with injuries again.
Midfielder Sandro went off in first half, stand-in skipper William Gallas limped off in 68th minute and substitute Jake Livermore was then forced off with a cut mouth and replaced by Niko Kranjcar.
Sunderland maintained their good form since the arrival of new manager Martin O'Neill with a 4-1 win over struggling Wigan Athletic.
O'Neill's side moved into the top half of the Premier League with goals from Craig Gardner, James McClean, Stephane Sessegnon and David Vaughan. Hugo Rodallega scored for Wigan.
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