Liverpool succumbed to their first defeat of the season to Pep Guardiola's side, putting an end to their nine-match winning run.
It was a frantic game from start to finish, with the meeting between the two sides billed as the biggest Premier League fixture of the season.
Sergio Aguero's intelligent finish from a tight angle gave the home side the lead heading in to the break, only for Roberto Firmino to level the scores after the hour mark.
Both sides had the chance to earn a valuable victory, however it was City who secured all three points when Leroy Sane finished past Alisson with a low shot towards the far post.
The Reds are still in a healthy position at the start of the new year, holding a four point lead over City after 21 games.
With Jurgen Klopp's side losing just their first game in the league, questions have been asked as to how they respond in the coming weeks in the hunt for the title.
iSport declare Man City to be "back in the hunt" as they "end Liverpool's shot at an unbeaten season and reduce gap at the top to four points."
Daniel Storey emphasises the small margins by which the game was decided, writing, "Plenty of matches are decided by margins; perhaps even most matches. But it is emphatically reiterated on nights like these.
"The ball is millimetres from crossing the line, the shot is inches from hitting the post and going in or inches from hitting the post and bouncing out, defenders are fractions of a second away from timing their headers and blocking the cross, goalmouth scrambles where the ball somehow stays out.
"The line between success and failure is so thin that it almost seems unfair for the result to mean so much. But this is the undeniable truth on which title races are founded."
The Mail hail Guardiola's players as "heroes", with Martin Samuel also eluding to the close margins in what will be a hotly-contested title race.
"Off it came, from the inside of the right post. Along the goal line, in at the left post. Ladies and gentlemen, we have what is known as a title race," he writes.
"And a proper one, now the head-to-head meetings of these teams are done. Match by match, weekend by weekend, they will fight each other by proxy around the grounds. Maybe Tottenham will chip in, too.
"It should be grand entertainment. Buckle up."
The Metro also believe City's win puts them right back in the mix, writing Guardiola's side's victory sees them "storm right back into the Premier League title race".
Oliver Young-Miles singled out Dejan Lovren as the weak link on the pitch for Liverpool, writing: "Lovren doesn’t make things easy for himself sometimes. Before the World Cup final last summer, Lovren proclaimed he was ‘one of the best defenders in the world’ before subsequently playing in a Croatia side that shipped four goals to France.
"In recent weeks, Lovren has talked up Liverpool’s chances of emulating Arsenal’s Invincibles from 2003-04 but unfortunately for him, he played his part in ensuring that Jurgen Klopp’s men will not become the second Premier League side to go unbeaten through a season."
Miles goes on to draw a contrast between Lovren and his fellow centre-back, claiming: "Unlike his defensive partner Virgil Van Dijk who exuded his customary sense of calm and authority throughout, Lovren performed as if he was in a permanent state of dizziness."
The Express call the hunt for the Premier League title a "fight to the finish" whilst writing that Leroy Sane's winner "blew the title race open as Man City slashed the gap at the head of the table to just four points."
James Walters piles on the misery for Lovren in his player ratings, calling the Croatian centre-back's performance a "flop showing" and handing him the lowest rating of all on the pitch with a mere 3.
Van Dijk is the Reds' highest-rated player with 8, which highlights the different evenings the two had.
Daily Star call City's win a "Sansation", writing, "Title race back on as Leroy sends Kop to first defeat."
David McDonnell writes how the win was "City proving their enduring class, desire and mental strength" to "reignite such a thrilling title race".
"Now, after a first league defeat for 242 days, comes the real test for Liverpool," he adds. "Can they recover from this setback or will the weight of history and expectation ultimately prove too much for them?
"The answers will come in the weeks and months ahead, but one thing is certain - City are not giving up their title without a fight, while third-placed Tottenham - six points off Liverpool - remain firmly in the mix."
Matt Dickinson further writes, "On Merseyside they had talked it up excitedly as the biggest league game involving Liverpool since April 2014. But that was when there was still hope of a famous, perhaps decisive, victory.
"Now Jürgen Klopp and his men can be sure there will be many more huge, nerve-racking tests if the quest for that title they crave so desperately is to be a glorious one."
The Mirror write how "Sane slashes Liverpool's title lead in thriller at the Etihad", whilst Steve Bates writes of Aguero's superb performance against the Reds defence.
"Sergio Aguero won the battle of the super strikers with Mo Salah to reach another milestone landmark in his glittering career," he wrote.
"The Argentinian scored the 250 League goal of his career - lashed in with venemous power from a tight angle just before half-time – to put City in the driving seat.
"The South American star kept Virgil Van Dijk and co busy all night with darting runs and a general air of menace and his goal was a decisive breakthrough."
The Guardian write how Aguero and Sane "shoot down Liverpool" to "ignite title race", with Daniel Taylor summarising how Liverpool now must respond to City's stellar performance.
"City gave everything to defend their lead, in the way that true champions do. They dug in, they formed an impenetrable blue line and, when it needed the ugly stuff, they were happy to oblige," he wrote.
"In the process they made it clear to their opponents it is going to be one hell of a battle between now and the end of the season.
"For Liverpool the priority must be not to wallow in self-pity. It is, after all, only a month ago that City were five points clear and looking capable of turning the title race into a procession
"Liverpool still have a four-point cushion and, if they need encouragement, there is only one other club in history who has reached the new year unbeaten and not gone on to win the league – and that was Sheffield United in the 1899-1900 season."