Robin van Persie's stoppage-time winner gave Arsenal a dramatic victory to leave Liverpool 10 points adrift of the Premier League's top four.
The Reds dominated early on but Dirk Kuyt had a penalty saved and both he and Luis Suarez fired against the post.
Liverpool finally took the lead when Laurent Koscielny sliced Jordan Henderson's cross into his own net.
But Arsenal quickly levelled through Van Persie's header and won it late on when he volleyed home Alex Song's pass.
DALGLISH'S 450th GAME
- This was Kenny Dalglish's 450th game as a top-flight manager with Liverpool, and Blackburn and Newcastle, and his 88th defeat. His full record stands at W247, D115, L88
The Dutchman's lethal finishing was the difference between the teams and, as well as inflicting a first home defeat of the season on Liverpool, underlined just how costly the Reds' poor form in front of goal has been to their campaign.
Kenny Dalglish's side, fresh from their Carling Cup final victory, paraded that trophy before kick-off but their hopes of using it as a foundation for a push towards the Champions League places were to be frustrated.
In fact, the first half will have made familiar viewing for fans of both sides, with Arsenal often caught wide open at the back but Liverpool unable to make the most of the series of chances they created.
Stewart Downing wasted the Reds' best early opening, scuffing his shot completely from 30 yards after Wojciech Szczesny dashed out of his area to deny Suarez, only to head straight at the England winger with his goal unguarded.
Arsenal's porous defence appeared unable to cope with Suarez's guile in front of goal, and the Uruguayan was at the heart of the move that produced Liverpool's penalty after 19 minutes, exchanging passes with Kuyt before going to ground under a challenge from Szczesny.
Kuyt was given responsibility from the spot but could not beat the Polish keeper, who sprang to his right to keep out the penalty - the sixth Liverpool have missed this season - and recovered to push away Kuyt's follow-up too.
Liverpool did not have to wait much longer to take the lead, but it was perhaps telling that they needed Arsenal's help to find the net, Koscielny making a complete hash of his attempt to clear Henderson's cross.
Dalglish's men should have been further ahead within moments of the restart, when another neat build-up ended with Szczesny saving Henderson's low shot and Suarez firing the rebound against the post.
Liverpool could have been out of sight, but instead Arsenal were quickly level when Bacary Sagna sent over a peach of a cross for Van Persie to escape Jamie Carragher and head home at the near post.
The setback did not stop the home side coming forward and they were denied by the woodwork on a second occasion before the break - and the 21st time in total this season - when Kuyt met Charlie Adam's cross with a flicked finish that came back off the post.
A lengthy delay at the start of the second half - when Mikel Arteta suffered concussion and a jaw injury in an off-the-ball collision with Henderson - seemed to bring a halt to the Reds' momentum however.
Arsenal began creating more openings, with home keeper Pepe Reina reacting brilliantly to keep out a Theo Walcott snapshot that took a deflection off Martin Skrtel on its way through to goal.
But Liverpool still looked the most likely to win it, Martin Kelly wasting a glorious chance when he miscued at the far post from a delicious Kuyt cross.
So it was a big surprise when, at the start of nine minutes of stoppage time caused by Arteta's injury, Van Persie latched on to Song's lofted through ball and smashed home a first-time shot at Reina's near post.
That took Van Persie's tally to 30 goals for the season, including 25 in the league, and gave the Gunners' own hopes of finishing fourth a huge boost.
- 25 Reina
- 03 Jose Enrique
- 23 Carragher
- 34 Kelly
- 37 Skrtel
- 14 Henderson
- 19 Downing (Bellamy - 88' )
- 20 Spearing (Carroll - 90' )
- 26 Adam
- 07 Suarez
- 18 Kuyt
- 32 Doni
- 16 Coates
- 38 Flanagan
- 11 Maxi
- 33 Shelvey
- 09 Carroll
- 39 Bellamy
- 13 Szczesny
- 03 Sagna
- 05 Vermaelen Booked
- 06 Koscielny
- 28 Gibbs
- 07 Rosicky
- 08 Arteta (Diaby - 53' )
- 14 Walcott
- 17 Song
- 30 Benayoun (Gervinho - 74' )
- 10 Van Persie
- 21 Fabianski
- 25 Jenkinson
- 49 Miquel
- 02 Diaby (Oxlade-Chamberlain - 80' )
- 15 Oxlade-Chamberlain
- 27 Gervinho
- 29 Chamakh
Live Text Commentary
Full Time The referee signals the end of the game.90:00 +6:15
Alex Oxlade-Chamberlain produces a right-footed shot from just outside the box that goes wide right of the goal.90:00 +4:46
The assistant referee flags for offside against Theo Walcott. Jose Reina takes the free kick.90:00 +3:46
Kieran Gibbs takes a shot. Jose Reina makes a comfortable save.90:00 +2:48 Substitution
Substitution Andy Carroll is brought on as a substitute for Jay Spearing.90:00 +1:56
Alex Song provided the assist for the goal.90:00 +1:56 Goal scored
Goal! - Robin van Persie - Liverpool 1 - 2 Arsenal Robin van Persie scores a goal from deep inside the penalty area to the top left corner of the goal. Liverpool 1-2 Arsenal.90:00 +0:58
Kieran Gibbs fouled by Martin Kelly, the ref awards a free kick. Wojciech Szczesny restarts play with the free kick.90:00 +0:44
The ball is sent over by Charlie Adam, clearance made by Thomas Vermaelen.88:56
Dirk Kuyt is flagged offside by the assistant referee. Wojciech Szczesny takes the indirect free kick.87:23 Substitution
Substitution Craig Bellamy is brought on as a substitute for Stewart Downing.87:12
Centre by Theo Walcott, Martin Skrtel makes a clearance.85:13
Dirk Kuyt is caught offside. Wojciech Szczesny takes the free kick.84:29
The ball is swung over by Bacary Sagna, clearance by Jay Spearing.82:38
Free kick awarded for an unfair challenge on Alex Oxlade-Chamberlain by Jordan Henderson. Kieran Gibbs takes the direct free kick.82:11
Corner taken by Stewart Downing from the left by-line to the near post, clearance by Robin van Persie.81:52
Corner taken left-footed by Charlie Adam to the near post, clearance by Alex Song.81:43
Centre by Sanchez Jose Enrique, clearance made by Kieran Gibbs.81:17
Centre by Jordan Henderson, Laurent Koscielny manages to make a clearance.79:33 Substitution
Substitution Alex Oxlade-Chamberlain replaces Vassiriki Diaby.
Laurent Koscielny concedes a free kick for a foul on Luis Suarez. Free kick taken by Sanchez Jose Enrique.78:38
Tomas Rosicky produces a cross, Theo Walcott takes a shot. Save by Jose Reina.76:31
Stewart Downing produces a left-footed shot from just outside the box that misses to the right of the goal.76:25
The ball is crossed by Jordan Henderson, Laurent Koscielny makes a clearance.75:08
Foul by Dirk Kuyt on Kieran Gibbs, free kick awarded. Wojciech Szczesny takes the free kick.74:54
A cross is delivered by Dirk Kuyt, clearance by Laurent Koscielny.74:15
The ball is crossed by Stewart Downing, Wojciech Szczesny makes a save.72:59
Wojciech Szczesny takes the direct free kick.72:59 Substitution
Substitution Yao Gervinho is brought on as a substitute for Yossi Benayoun.72:59
Luis Suarez concedes a free kick for a foul on Vassiriki Diaby.70:57
Theo Walcott takes the chance to get an effort at goal. Brilliant save by Jose Reina.70:07
Dirk Kuyt is ruled offside. Wojciech Szczesny takes the free kick.68:50
The ball is sent over by Dirk Kuyt, Effort from close range by Martin Kelly goes wide left of the target.68:40
The ball is sent over by Jordan Henderson, clearance by Laurent Koscielny.68:19
Corner taken left-footed by Stewart Downing, Robin van Persie manages to make a clearance.68:10
Charlie Adam crosses the ball, Wojciech Szczesny makes a save.67:25
Alex Song challenges Stewart Downing unfairly and gives away a free kick. Charlie Adam crosses the ball from the free kick left-footed from right wing, clearance by Robin van Persie.67:10
Charlie Adam crosses the ball.65:24
The ball is delivered by Tomas Rosicky, Jordan Henderson manages to make a clearance.64:21
Free kick awarded for an unfair challenge on Yossi Benayoun by Charlie Adam. Alex Song restarts play with the free kick.63:35
Stewart Downing crosses the ball, Laurent Koscielny manages to make a clearance.63:01
Direct free kick taken by Jamie Carragher.63:01 Booking
Booking Thomas Vermaelen goes into the referee's book for unsporting behaviour.62:45
Foul by Thomas Vermaelen on Luis Suarez, free kick awarded.60:11
Jay Spearing takes a shot. Wojciech Szczesny makes a fantastic save.59:41
Corner taken left-footed by Stewart Downing.58:13
Effort from the edge of the area by Theo Walcott goes wide of the right-hand post.56:58
Foul by Laurent Koscielny on Luis Suarez, free kick awarded. Free kick taken by Sanchez Jose Enrique.53:21
A cross is delivered by Martin Kelly, Kieran Gibbs gets a block in.52:59
Vassiriki Diaby has an effort at goal. Jose Reina makes a comfortable save.46:52
Direct free kick taken by Thomas Vermaelen.46:52 Substitution
Substitution (Arsenal) makes a substitution, with Vassiriki Diaby coming on for Mikel Arteta.46:52
Charlie Adam gives away a free kick for an unfair challenge on Alex Song.45:55
Luis Suarez has an effort at goal from deep inside the area missing to the right of the target.45:01
The match restarts for the second half.45:00 +2:04 Half time
Half Time The referee blows for half time.45:00 +1:18
Charlie Adam delivers the ball, Effort from deep inside the area by Dirk Kuyt bounces off the post.45:00 +0:57
The ball is swung over by Jordan Henderson, comfortable save by Wojciech Szczesny.43:45
Jordan Henderson produces a cross, clearance made by Thomas Vermaelen.43:00
The ball is crossed by Theo Walcott.41:38
Sanchez Jose Enrique challenges Theo Walcott unfairly and gives away a free kick. Bacary Sagna takes the free kick.40:36
A cross is delivered by Martin Kelly, Laurent Koscielny manages to make a clearance.39:10
Stewart Downing takes a inswinging corner to the near post, Close range header by Martin Skrtel goes over the bar.38:58
Effort on goal by Luis Suarez from 12 yards. Brilliant save by Wojciech Szczesny.38:36
A cross is delivered by Stewart Downing, Kieran Gibbs manages to make a clearance.38:18
Alex Song challenges Stewart Downing unfairly and gives away a free kick. Sanchez Jose Enrique takes the direct free kick.35:20
Mikel Arteta fouled by Luis Suarez, the ref awards a free kick. Laurent Koscielny takes the direct free kick.34:36
Tomas Rosicky gives away a free kick for an unfair challenge on Jay Spearing. Jamie Carragher takes the free kick.33:42
Martin Kelly crosses the ball.32:32
Stewart Downing crosses the ball, Laurent Koscielny manages to make a clearance.32:03
Corner taken left-footed by Charlie Adam from the right by-line, clearance made by Kieran Gibbs.31:21
Charlie Adam takes the inswinging corner, clearance by Bacary Sagna.30:22
Assist by Bacary Sagna.30:22 Goal scored
Goal! - Robin van Persie - Liverpool 1 - 1 Arsenal Robin van Persie finds the back of the net with a headed goal from close range. Liverpool 1-1 Arsenal.30:19
Bacary Sagna delivers the ball,27:14
Free kick awarded for an unfair challenge on Bacary Sagna by Dirk Kuyt. Mikel Arteta takes the direct free kick.24:58
Effort from inside the penalty area by Luis Suarez strikes the post.24:43
Effort on goal by Jordan Henderson from 18 yards. Save by Wojciech Szczesny.22:31
Jordan Henderson provided the assist for the goal.22:31 Goal scored
Goal! - Laurent Koscielny - Liverpool 1 - 0 Arsenal Laurent Koscielny concedes an unfortunate own goal. Liverpool 1-0 Arsenal.22:28
The ball is crossed by Jordan Henderson,19:33
Free kick awarded for an unfair challenge on Wojciech Szczesny by Luis Suarez. Wojciech Szczesny restarts play with the free kick.18:47
Corner taken by Stewart Downing, fantastic save by Wojciech Szczesny.18:35
Corner taken by Charlie Adam from the right by-line, Thomas Vermaelen makes a clearance.18:22
Dirk Kuyt takes a shot from 6 yards. Save made by Wojciech Szczesny.18:15 Penalty
Power penalty taken by Dirk Kuyt saved by Wojciech Szczesny. Liverpool 0-0 Arsenal.17:01
Wojciech Szczesny concedes a Penalty for a foul on Luis Suarez.15:18
Martin Kelly crosses the ball, save by Wojciech Szczesny.14:25
Luis Suarez fouled by Kieran Gibbs, the ref awards a free kick. Jay Spearing takes the free kick.14:12
The ball is delivered by Kieran Gibbs, clearance by Martin Skrtel.13:52
Sanchez Jose Enrique sends in a cross, save by Wojciech Szczesny.12:54
Foul by Charlie Adam on Alex Song, free kick awarded. Bacary Sagna restarts play with the free kick.11:39
Corner taken by Charlie Adam from the right by-line to the near post.10:57
Kieran Gibbs challenges Luis Suarez unfairly and gives away a free kick. Jamie Carragher restarts play with the free kick.10:29
Shot by Bacary Sagna.9:38
Dirk Kuyt produces a right-footed shot from a long way out which goes wide right of the goal.7:11
Theo Walcott takes a shot. Save by Jose Reina.5:14
Centre by Mikel Arteta, save by Jose Reina.3:27
The official flags Luis Suarez offside. Indirect free kick taken by Bacary Sagna.2:06
Outswinging corner taken left-footed by Charlie Adam from the left by-line, Close range headed effort by Martin Kelly goes wide of the left-hand upright.1:12
The assistant referee flags for offside against Stewart Downing. Free kick taken by Wojciech Szczesny.0:20
Charlie Adam takes the outswinging corner, Thomas Vermaelen manages to make a clearance.0:00
The match has kicked off.
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