Palace held out until the 44th minute before Leroy Sane broke the deadlock and a quickfire double by Raheem Sterling deflated the visitors' initially stubborn resistance.
Late goals by Sergio Aguero and Fabian Delph completed a 5-0 rout - the first time since 1958/59 that a top flight side has hit five or more in three successive games.
Joint Premier League leaders versus the bottom-of-the-table side – on paper it looked like a forgone conclusion, but pointless and goalless Crystal Palace arrived at the Etihad under new management and with a midweek Carabao Cup win under their belt.
City made eight changes from the side that beat West Brom 2-1 on Wednesday with seven of those rested against the Baggies returning to first team duty.
So prolific have the Blues been in terms of goals this season that it was something of a surprise that the visitors survived the first 20 minutes relatively unscathed – not that they could have fallen behind.
Kevin De Bruyne’s temping cross was very nearly turned into his own net by Mamadou Sakho on seven minutes as he deflected the ball onto the post with Wayne Hennessey beaten.
Then Fernandinho saw the ball land at his feet six yards out on 13 but he powered his shot straight at Hennessey who beat effort out for Aguero to fire over under pressure.
Palace looked organised and compact, strengthening the popular opinion they are perhaps in a false position, and the visitors were unlucky not to take the lead themselves when Ruben Loftus-Cheek rattled the post with a low drive from 18-yards on 20 minutes.
In fact, the more the half progressed, the more threatening Palace’s counter-attacks became, but the Blues again went close when the combination of David Silva and Sane presented Aguero with a chance that he scooped over the bar from close range.
City’s passing was sloppy at times and as the first half drew towards a close, so the home support became increasingly frustrated – as did boss Pep Guardiola who looked exasperated on occasion – and the loss of Benjamin Mendy with a knee problem hardly helped matters.
But just as it seemed the Palace tactics were working to perfection, City finally broke the deadlock.
There didn’t seem that much on as Sane collected the ball on the left flank, but his one-two with Silva saw the young German collect the lofted return pass, tip the ball over the head of Scott Dann before flicking it under Hennessey to put the Blues ahead a minute before the break.
Just seven minutes into the second period, City doubled the lead.
Danilo started the move in his own half, finding Fernandinho who picked out Aguero just beyond the halfway line. His first-time pass to De Bruyne allowed the Belgian to set Sane free and his clever low cross meant Sterling didn't have to break stride as he powered home the Blues' second of the afternoon and his 50th career goal.
Minutes later a sublime piece of skill by Aguero saw him somehow dance his way past three challenges before being denied by the feet of Hennessey - but it was brief respite for Palace who fell further behind a minute later.to another Sterling goal, this time with Aguero supplying the assist for the in-form winger.
Palace's resistance was in shreds and Sane should have made it four almost straight from the kick-off as the Blues - with four against one - moved in for the kill, but Hennessey saved well at his feet.
It wasn't until 11 minutes from time that City added a fourth, with the outstanding Sane finding Aguero in the six-yard box with an inch-perfect cross that the Argentine merely had to flex his neck muscles to head past a despairing Hennessey - his 176th in City colours and one shy of equalling Eric Brook's record.
The goal of the game was saved until the 88th-minute when Delph curled in a beauty from 20 yards to complete Palace's misery and send the home fans home in great spirit.
Obviously the opening goal was a crucial turning point in the game, with just a minute or so to play before the break. But had Loftus-Cheek's low drive been six inches to the right, the visitors would have gone ahead and who knows how the game might have panned out?
City Matchday App star man: Leroy Sane
A goal and two assists for City's flying German winger who won the Matchday App fans' vote.
What it means:
City go from being joint leaders with United to outright leaders on goal difference, despite United beating Southampton this afternoon.
City are back at the Etihad in four days’ time to face Shakhtar Donetsk in the Champions League. Then it’s off to defending Premier League champions Chelsea at Stamford Bridge next Saturday before the season’s second international break.