It was a superb all-round performance from Enzo Maresca's young charges who continue to go from strength to strength.
Up against the PL2 leaders on their own stamping ground, it promised to be our toughest test yet this season.
However, Maresca’s side seized control with a dominant, hugely impressive opening first 45 minutes.
That said, it needed two great saves from Cieran Slicker in the opening three minutes to deny Tyler Morton.
After that however City soon got into the groove as our passing and movement caused the hosts constant headaches.
On 12 minutes there was a sign of what was to come as Taylor Harwood-Bellis found James McAtee on the left. The midfielder got in behind the Liverpool defence and his cross was met instantly by Palmer who drilled a low drive off the outside of the right upright.
Our impressive all-round play then got its just reward on 20 minutes when Palmer raced through to beat the Liverpool keeper and roll into an empty net after more fine inter-play.
Within five minutes we had doubled our advantage.
Another lightning City forward foray saw Tommy Doyle zip a cross in from the right. The ball was reworked by McAtee and found the waiting Bernabe who jinked inside before drilling a superb 20 yard shot into the net.
Just past the half hour Palmer then added his second and City’s third in fantastic fashion.
City poured forward yet again and though the Liverpool keeper Caoimhin Kelleher denied Doyle’s low drive, the ball rebounded to Palmer who produced a stunning instinctive chip from 25 yards to add his second and our third.
And on stroke of half-time another sweeping move saw Felix Nmecha fire an 18-yard shot inches over the bar.
City almost added a fourth straight after the restart, Delap being sent racing clear by Doyle only for his shot to be blocked by Kelleher, with the Liverpool keeper then also denying Palmer a hat-trick by saving his deflected drive.
Liverpool then narrowed the deficit as Tyler Morton’s 49th minute effort got them on the scoresheet.
But City responded in perfect fashion with Delap finally rewarded for his efforts as he fired home from Bernabe’s assist.
Liverpool though came again and Thomas Clayton’s 59th minute goal reduced the arrears to two once again.
City would not be denied however, and Delap showed he can match panache with power as he took a leaf out of Palmer’s book by executing a delicate chip from substitute Alex Robertson’s inviting through ball with 20 minutes left.
How we lined up
Cieran Slicker was in goal shielded by a back four of skipper CJ Egan-Riley, Taylor Harwood-Bellis, Luke Mbete and Adrian Bernabe. Claudio Gomes was the holding midfielder with Cole Palmer and Tommy Doyle also in the engine room. Liam Delap was the focal point up front with Felix Nmecha and James McAtee also deployed in an attacking role.
Subs: Ogbeta, Scott, Robertson, Knight, Simmonds
What it means
The victory moves us up into fourth place in the PL2 table with 14 points from eight games.
Our EDS youngsters are back in PL2 action on Friday when we play host to Brighton Under-23s at the Academy Stadium.
Kick-off is at 1pm and CITY+ subscribers will be able to watch the match live on our digital channels.
FULL-MATCH REPLAY: Liverpool U23s 2-7 City EDS
City's Elite Development Squad produced a stunning display to beat Premier League 2 leaders Liverpool 7-2 on Merseyside. Watch more.