Liverpool were boosted by the signing of former City striker earlier in the day with the Italian watching on at the Etihad in the stands as his former club made the better start with Edin Dzeko looking to strike inside eight minutes only to see a powerful shot drift wide of the target.
However, Liverpool came even closer just a minute later as Raheem Sterling chested the ball down before shooting on the turn only to narrowly miss the target but the visitors did get on target within minutes as Steven Gerrard swept in a dangerous free-kick which found the arms of Joe Hart.
The hosts had two good chances to go in front in the space of two minutes with Pablo Zabaleta sking a shot over the bar before Yaya Toure tested Simon Mignolet with a strong long range effort which the Belgian saved well and Steven Gerrard tried a similar effort but saw his chance drift wide of the target.
The former England captain tested Joe Hart twice in a short period from set pieces, first with a curling free-kick that drew a strong punch from the England goalkeeper before a similar effort saw Hart punch clear yet again as Liverpool ramped up the pressure.
A well-worked move down the middle saw Daniel Sturridge advance on goal only to see a strong shot parried by Joe Hart who was a huge factor in the score remaining level. City responded well and went in front after some good fortune as Alberto Moreno's attempted clearance saw him misjudge the flight of the ball which allowed Stevan Jovetic to capitalise and fire past Simon Mignolet.
Liverpool looked to have levelled just seven minutes into the second half when a superb aerial pass from Glen Johnson saw him pick out Daniel Sturridge who fired past Joe Hart to the joy of the travelling fans but the effort was chalked off due to offside.
City looked to double the lead when Edin Dzeko broke through the Liverpool defence and looked odds on to score only for a superb chase back from Alberto Moreno to deny him with a great tackle in the area but it was a warning of what was to come as Samir Nasri picked out Stevan Jovetic who rifled a shot past Simon Mignolet for 2-0.
City looked to have confirmed the win in the 68th minute as 'super-sub' Sergio Aguero took just 23 seconds to score as he latched on to a good pass and dashed towards goal before hitting past Simon Mignolet for 3-0 and surely wrap up the three points.
However, Liverpool did bounce back to 3-1 with eight minutes to go as Rickie Lambert collected a superb cross from Daniel Sturridge and hit for goal only for the shot to hit Pablo Zabaleta before beating Joe Hart but it was little consolation as the Reds lost only their second league game in 2014.