Man City moved back to within five points of league leaders Arsenal at the top of the standings after the win.
Playing without their star striker Erling Haaland, who is out injured, Julian Alvarez, Kevin De Bruyne, Ilkay Gundogan and Jack Grealish scored for the defending champions, after Mohamed Salah gave visitors Liverpool a lead in the 17th minute.
City and Liverpool have finished as the top two in four of the past five Premier League seasons, but the Reds are struggling just to qualify for the Champions League after a dreadful campaign and were given another lesson in the gap they have to bridge to be back to challenging next season.
A chastening defeat leaves Jurgen Klopp‘s men still seven points adrift of the top four down in sixth.
A groin injury meant Haaland was watching on from the stands alongside his father and former City midfielder Alfie Haaland.
Despite the absence of their 42-goal striker, Pep Guardiola’s men made a positive start as Alisson Becker was forced into saves from Gundogan and Rodri before Riyad Mahrez fired a free-kick inches wide.
But City were caught out on the counter-attack as Liverpool went in front on 17 minutes.
The home fans were screaming for offside as Diogo Jota broke in behind the City defence before teeing up Mohamed Salah to slot home his 23rd goal of the season.
A VAR review showed Manuel Akanji had played the Portuguese forward onside.
Guardiola was on his knees when Mahrez blasted over another great chance inches over.
But he did not have to wait long for his side to show their quality, even shorn of Haaland.
De Bruyne, Mahrez and Grealish combined to open up the Liverpool defence and Alvarez was left with the simple task of slotting in his 13th goal of the season despite spending most of the campaign as Haaland’s deputy.
It took just 53 seconds of the second half for City to edge in front thanks to another scintillating team move.
Alvarez was the creator this time as his cross-field pass freed Mahrez to race into acres of space behind the Liverpool defence.
The Algerian’s cross was perfectly weighted to cut out Alisson for De Bruyne to tap into an unguarded net.
If City’s first two goals were the fruit of collective brilliance, Liverpool’s defending for the third summed up a miserable season for Klopp’s men.
Alvarez was afforded an incredible amount of time inside the box by Fabinho to pick out a shot and, when his effort was blocked by Trent Alexander-Arnold, Gundogan also had the space to take a touch before firing into the top corner.
Liverpool have now conceded three or more goals in nine games this season and the punishment did not end there for the visitors.
Grealish was the standout individual on the day and rounded off arguably his best performance as a City player with the fourth goal.
City’s movement off the ball was again too good for a cumbersome Liverpool defence as Grealish and De Bruyne exchanged a one-two before the Premier League’s most expensive player of all time side-footed into the far corner.
Arsenal, who face Leeds later on Saturday, maintain the upper hand in the title race.
But City could be coming to the boil at just the right time after scoring 17 goals in their last three games and with Arsenal still to visit the Etihad later this month.
(With inputs from AFP)