After their midweek thrashing of Real Madrid in the Champions League, Liverpool responded to falling behind to a Cristiano Ronaldo penalty with another sensational display to seal a league double over the champions.
Fernando Torres and a Steven Gerrard spot kick edged Liverpool in front by halftime. Fabio Aurelio then curled in a 77th minute free kick to make it 3-1 after United defender Nemanja Vidic had been sent off.
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United lead the table by four points from Liverpool with a game in hand but their poor performance will give renewed heart to Liverpool and Chelsea who face Manchester City on Sunday.
"It was a great team performance from back to front," Liverpool captain Steven Gerrard told Sky Sports. "It was a magnificent win. It's not very often you see Man United get beaten 4-1 at home.
"The important thing is the gap is smaller. We still need a bit of luck along the way but it may give the teams who still have to play United a bit of belief."
Middlesbrough remained second from bottom after a 1-1 home draw with fellow strugglers Portsmouth,
Hull City drew 1-1 with Newcastle United while Bolton Wanderers went down 3-1 at home to Fulham.
Wigan Athletic beat Sunderland 2-1 away and Cup semi-finalists Everton sent Stoke City back into the drop zone with a 3-1 victory at Goodison Park.
Liverpool manager Rafael Benitez had lost all four of his previous league games at United and a fifth, which would have ended his side's title hopes, looked on the cards until the game swung on a defensive howler by Nemanja Vidic.
With United in control after Ronaldo's penalty, awarded when Liverpool keeper Pepe Reina brought down Park Ji-sung, an aimless punt upfield appeared to be comfortable for Vidic.
The Serb, a rock at the heart of United's hitherto miserly defence this season, got caught in two minds and as he dithered, Torres stole in to place a low finish past Edwin van der Sar.
Liverpool began playing fluently and they went ahead just before the break when Patrice Evra was caught by the pace of Gerrard's burst into the area and clipped
