In the clash between the two sides that have dominated English football over the past five years, City were a class apart despite the absence of Erling Haaland due to injury.
Liverpool went in front through Mohamed Salah's 23rd goal of the season but were blown away in the second half after Julian Alvarez brought City level before the break.
Pep Guardiola's men needed less than a minute in the second period to go in front as Kevin De Bruyne tapped home Riyad Mahrez's cross.
Ilkay Gundogan slammed home the third before Jack Grealish rounded off his best performance in a City shirt with a fine finish for the fourth.
"Now it’s the Jack we thought. Aston Villa fans know this Jack," said Guardiola of Grealish, who joined for a Premier League record £100 million in 2021.
"Nothing changed, it’s just a question of believing I am part of that, and I can be here."
A sobering defeat is another blow to Liverpool's hopes of a top-four finish as the Reds slip to eighth in the table.
Seventh heaven for Arsenal
Arsenal did not feel the pressure of City briefly cutting the gap before kick-off at the Emirates as Jesus marked his first league start since November with a double.
Bukayo Saka was handed a rare rest by Mikel Arteta and Jesus took responsibility from the penalty spot in his absence to open the scoring 10 minutes before half-time.
Jesus was sidelined for three months after picking up a knee injury at the World Cup but the former City forward's return for the run-in could deny his old club a fifth title in six years.
The Brazilian fired home his second goal of the game after Ben White doubled Arsenal's lead early in the second half.
Rasmus Kristensen pulled a goal back for Leeds, but Granit Xhaka rounded off the scoring as Arsenal made it seven consecutive league wins for the first time under Arteta.
Brighton and Brentford shared the points after a thrilling 3-3 draw.
Three times Brentford led at the Amex through Pontus Jansson, Ivan Toney and Ethan Pinnock.
But the Seagulls grabbed a deserved point thanks to Alexis Mac Allister's late penalty after Kaoru Mitoma and Danny Welbeck also equalised in the first half.
A point apiece sees both sides edge above Liverpool and within six points of the top four.
Roy's return delivers for Palace
Roy Hodgson's return at Crystal Palace delivered the Eagles' first victory of 2023 as Jean Philippe-Mateta's 94th minute goal beat Leicester 2-1 at Selhurst Park.
The Foxes looked on course for a much-needed win when Ricardo Pereira fired home on 56 minutes.
But Eberechi Eze's free-kick hit the woodwork and deflected in off Leicester goalkeeper Daniel Iversen to quickly get Palace level before Mateta cooly slotted home at the death.
Defeat sees Leicester slip into the relegation zone after Bournemouth came from behind to beat Fulham 2-1 thanks to goals from Marcus Tavernier and Dominic Solanke.
Nottingham Forest and Wolves remain just outside the bottom three after a 1-1 draw at the City Ground.
Daniel Podence struck seven minutes from time to snatch a draw for the visitors after Brennan Johnson opened the scoring for Forest.
