Liverpool's hopes of winning their first title in 24 years suffered a huge setback when they lost 2-0 at home to Chelsea and Manchester City took advantage with a 2-0 victory at Crystal Palace.
In the latest twist of a fascinating Premier League season, under-strength Chelsea cut the gap at the top to two points with two games to play in a tactical triumph for their manager Jose Mourinho.
Mourinho immediately ruled his team out of contention but the result boosted the title aspirations of third-placed City, who closed the gap on the leaders to three points with a comfortable victory at Palace.
They have a game in hand and a much better goal difference than either of their rivals.
If they win at fifth-placed Everton on Saturday, City will be hot favourites to repeat the title success of two years ago - possibly on goal difference once again.
The City supporters at Selhurst Park cheered news of Liverpool's defeat and had further cause for celebration as Yaya Toure, returning from injury, made the first goal for Edin Dzeko with a perfect cross.
Toure scored the second, his 19th in the league this season,
before halftime after a fine run from the halfway line.
"It's difficult to predict the outcome of this League," City captain Vincent Kompany told Sky Sports.
"It's in our hands again but there have been so many changes over this season."
Chelsea have beaten both their title rivals at home and away and despite missing five leading players through injury and suspension, Mourinho also rested others ahead of Wednesday's Champions League semi-final second leg at home to Atletico Madrid.
Liverpool manager Brendan Rodgers, who once worked under the Portuguese at Chelsea, accused his former club of playing defensively and having "two buses parked" in front of their goal.
But his side, who had won their previous 11 games to become favourites for the title, failed to make enough chances.
Philippe Coutinho wasted an early opportunity and Mamadou Sakho also missed the target but Chelsea's reserve goalkeeper Mark Schwarzer did not have a shot to save for almost an hour.
Just before the interval Liverpool captain Steven Gerrard slipped as he received a square pass near the halfway line and Demba Ba ran on to finish coolly.
Schwarzer, standing in for the injured Petr Cech, did well to keep out Joe Allen's volley and pushed over a shot from Luis Suarez.
But the Uruguayan striker, favourite to be named Player of the Year by his fellow professionals later on Sunday, was generally well controlled by a solid Chelsea defence and although the London side were pushed back for much of the second half, they still counter-attacked dangerously.
Goalkeeper Simon Mignolet had to save low down from Andre Schuerrle on one such break and in stoppage time Fernando Torres, once a Liverpool hero, set up Brazilian midfielder Willian to seal the win.
Chelsea were left to rue a shock home defeat by Sunderland in their last game, the first time Mourinho had lost in 78 league matches at Stamford Bridge.
Had they won that game they would now have been top of the table and would have the title in their own hands.
Chelsea's remaining fixtures are against two relegation candidates, Norwich at home and Cardiff away.
Liverpool play away to Crystal Palace and finish at home to Newcastle, hoping that City will drop points in what has been a topsy-turvy Premier League season with their last two games at home to struggling Aston Villa and West Ham.
Rodgers refused to concede anything.
"Manchester City have still got the games to play," he said. "We'll fight to finish as high as we can and see where it takes us."
Image: Chelsea's Willian (right) celebrates with team mate Fernando Torres after scoring the second goal.
Photograph: Darren Staples/Reuters