Jurgen Klopp's side paid the price for a sloppy display as Steven Alzate's second half strike gave struggling Brighton a memorable success at the expense of the injury-hit champions.
Liverpool stunned by Brighton as Man City move three points clear
Liverpool's Premier League title defence suffered a damaging blow as Brighton earned a shock 1-0 win at Anfield, while Manchester City moved three points clear at the top with a 2-0 victory against Burnley on Wednesday.
Brighton's first away league win against Liverpool since 1982 was secured in the 56th minute when Dan Burn headed a cross towards Alzate and the Colombia midfielder flicked his shot inside the far post.
Liverpool are languishing in fourth place and trail Manchester City by seven points, with the leaders holding a game in hand.
The Reds' dismal defeat leaves them in desperate need of three points when in-form City visit Anfield for a crucial clash on Sunday.
Klopp's men had looked back on track after wins at Tottenham and West Ham last week.
But Liverpool have now lost successive home league games for the first time since 2012 and haven't won a top-flight match at Anfield in four attempts.
Their sudden collapse on home turf is remarkable given they hadn't lost a home league game since 2017 before Burnley won at Anfield on January 21.
Pep Guardiola's side had watched Manchester United draw level on points with them on Tuesday after their bitter rivals crushed Southampton 9-0.
But City underlined their determination to hold onto top spot with a composed, mature display at Turf Moor.
Gabriel Jesus opened the scoring after a mistake from Burnley keeper Nick Pope and Raheem Sterling grabbed the second before half-time.
After a spluttering start to the season that threatened to derail their title hopes, City, who have a game in hand on second placed United, are in pole position to dethrone Liverpool.
So bleak was City's position at one stage that Guardiola expected to be thinking about qualifying for the Europa League rather than winning the title.
"We have to do our job. It's a big mistake to think about other sides," Guardiola said of the title race.
"When we were 12th we were thinking forget about the Premier League, if we can achieve being in Europa League next season."
City head into the Liverpool showdown on a club record run of 13 successive victories in all competitions, including nine in the league.
With Sergio Aguero and Kevin De Bruyne still sidelined by injuries, City's surge to the top is even more remarkable.
Last crowned champions in 2019, they are unbeaten in 20 matches in all competitions stretching back to November and have conceded just four goals during that run.
Their latest rock-solid effort at the back equalled the club league record of six consecutive clean-sheets.
Leicester beat struggling Fulham 2-0 to improve their superb away league record.
Despite the absence of injured leading scorer Jamie Vardy, Kelechi Iheanacho opened the scoring for Brendan Rodgers' men and James Justin doubled their lead on the stroke of half-time.
Leicester now have eight wins out of 11 on the road, in contrast to their mixed form at the King Power Stadium, where they have suffered five defeats.
Jesse Lingard scored twice on his West Ham debut to clinch a 3-1 victory at Aston Villa.
Tomas Soucek opened the scoring after 51 minutes when he latched into Said Benrahma's pass and drilled into the corner.
Lingard, who signed on loan from Manchester United last week, struck in the 56th minute after a flowing West Ham counter.
Villa's Ollie Watkins scored in the 81st minute, but Lingard bagged his second two minutes later as fifth placed West Ham held on for a fifth win in their last six league games.
Dominic Calvert-Lewin got back on the goal trail as sixth placed Everton won 2-1 at Leeds.
Calvert-Lewin notched his first goal in eight league games to take his tally for the season to 12 after Gylfi Sigurdsson had given the visitors an early lead.
Raphinha pulled one back for Leeds soon after the interval, but Everton secured a fourth successive away league win for the first time since 1985.
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