After City old boy Daniel Sturridge cancelled out Edin Dzeko’s opener for the hosts, a 73rd-minute Steven Gerrard thunderbolt gave Liverpool a glimpse of victory, only for Sergio Aguero to level moments later.
Until City’s draw, Manchester United were 10 points ahead in the league, after winning 1-0 at Fulham.
United’s Wayne Rooney netted the winner in the 79th minute, steering the ball into the bottom-right corner of the net.
Elsewhere, new signing Moussa Sissoko scored a last-minute goal to give Newcastle United a 3-2 victory at home to Chelsea.
Tottenham Hotspur lost Jermain Defoe to injury but won 1-0 at West Bromwich Albion with a fine Gareth Bale goal.
After West Brom’s Macedonian left-back Goran Popov was shown a red card for spitting, the visitors made their advantage count in the 67th minute with a Bale’s vicious strike from just outside the 18-yard area.
Spurs are now three points clear of Everton in the fourth and final Champions League position, while West Brom remain ninth.
Arsenal left it late to beat Stoke City 1-0 and move to within a point of the Champions League places.
Substitute Lukas Podolski settled the game in the 78th minute with a low free-kick that deflected off Geoff Cameron.
Marouane Fellaini headed in an injury-time equaliser to earn Everton a 3-3 draw in a breathless game at home to Aston Villa, who remain firmly entrenched in the bottom three.
A Christian Benteke brace and a goal from Gabriel Agbonlahor meant Villa were 3-1 up with 21 minutes to play, Victor Anichebe having replied for Everton. But a second-half double from Fellaini gave Everton a share of the spoils.
Villa are now two points below fourth-bottom Reading, who won 2-1 at home to Sunderland.
Jimmy Kebe scored both goals for the hosts, heading in an 85th-minute winner after Craig Gardner had cancelled out his early opener with a 29th-minute penalty.
Southampton were denied a precious victory after conceding a late equaliser in a 2-2 draw at Wigan Athletic.
On-loan Liverpool striker Andy Carroll scored only his second goal of the season to give West Ham United a 1-0 win at home to Swansea.
Adel Taarabt had a second-half penalty saved as Queens Park Rangers were held to a 0-0 draw by Norwich City that left them six points from safety and four points adrift from the foot of the table.
In The Phuket News Tipping competition: congratulations to Suncat100, who won the January scores with 90 points, a nine point lead over challengers diggersd and Keefers Kathu
After one week of the new month, eight players are tied at the top of the table on 23 points. Suncat100 still has the overall lead with 500 points, but Blackrosebar with 465 has trimmed the gap to 35 points.
This month (February 2012) the competition is sponsored by Australia Bar & Grill in Kata. The monthly winner will receive a B3,000 voucher to spend at the venue.
The overall winner at the end of the season will win a brand new Honda Scoopy courtesy of AP Honda.