Victory for Jurgen Klopp's men would have put the league leaders 10 points ahead of the defending champions and hot favorites to clinch the club's first league title for 29 years.
But though the finishing line will now feel a long way off for Liverpool's players, and fans, there are plenty of reasons, specifically statistics, to suggest that this is the season the Merseyside club will win a first EPL title.
Stats and more stats
First, to the most startling statistic of all. To over a century of convention.
Only once has an English club reached the new year unbeaten and not won the top division -- Sheffield United in the 1899-1900 season -- and no team in Premier League history has been seven points clear on New Year's Day (as Liverpool was) and failed to win the title.
For Liverpool fans starting to feel hot under the collar after their team's first league loss of the season, there's more.
Liverpool's haul of 54 points is the club's best return at the turn of the year in any season -- and the third-best by any side in top-flight history. Indeed, Liverpool is the first team to win all seven EPL games in December, a congested month in English football.
The stars are aligned, it seems. Or are they?
In eight of the past 10 EPL seasons, the leader on December 25 has gone on to win the title. The exceptions being, yes, you guessed it, Liverpool in 2008-09 and 2013-14.
But Klopp's side is different to the coruscating team of 2013-14 which was led by the brilliant Luis Suarez. The Reds have already kept more clean sheets this season than they did in the entire campaign under Brendan Rodgers four years ago, when City ripped the crown from their grasp.
Indeed, in that swashbuckling 2013-14 season Liverpool had conceded 50 goals -- just 10 goals have been shipped so far in this more measured campaign.
On paper, Liverpool has a favorable fixture list in January -- Brighton, Crystal Palace and Leicester -- but the Reds have lost 10 of 25 matches in all competitions under Klopp in the first month of the year which, according to Opta, makes up 29% of the German's defeats as Liverpool boss. Ominous?
Statistics aren't everything, however. Though a first EPL defeat of the season was a setback, Liverpool wasn't outplayed by City. It was a tight contest between the two best teams in the country. Fine margins decided the match. In the first half it's estimated Liverpool were just 11.7 millimeters from taking the lead following a Sadio Mane shot that was cleared off the line.
As Klopp reflected post-match: "We were unlucky in our finishing moments. Unluckier than City I would say. [Leroy] Sane scores [off the post] and the situation with Sadio [Mane] when he hit the post [and misses].
"It was not our or City's best game, because we both made it difficult for the other team. I have already said to the boys this is OK. We lost it but it will happen. It is not nice but it is not the biggest problem."
Liverpool has to start winning again immediately (the next league fixture is away at Brighton on January 12), but so do City and third-placed Tottenham.
After victory at the Etihad Stadium, City boss Pep Guardiola told reporters: "Everything is open. Now it is tight again. Now we can rest and relax. I don't remember a league so tough, there are so many huge contenders fighting for the title. Every game is a final."
It would be unprecedented for Liverpool not to win the league from such a position of strength. For the optimistic neutral at least, whatever happens from now until May in the most intriguing EPL title race in years, the history books will be rewritten.
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