Michael Olise scored an injury time equaliser from the penalty spot after Phil Foden caught Jean-Philippe Mateta in the box.
But Mateta pulled one back with the Eagles’ first attempt on goal before they snatched a point with a dramatic finish.
Palace boss Roy Hodgson has been successful with a gameplan to make it difficult for City in previous visits to the Etihad and it was to be a familiar story.
The Eagles dropped deep with all 11 players often in and around the penalty box in the first half as Guardiola’s side controlled possession and tried to open up a crowded backline.
Ruben Dias tried a strike from 20 yards that curled just wide and a Rodrigo effort flashed past the same post when his shot from Lewis’ cutback diverted inches wide off Marc Guehi’s outstretched foot.
But City persevered with our precision passing and it worked perfectly when we picked a way through midway into the first half.
Foden found a tiny bit of room on the edge of the box, quickly turning to nutmeg a pass through to Grealish who swept a low strike into the corner.
Coming after his winner at Luton last weekend, it was another big contribution from the England star although he had to wait for a long VAR check for offside before it was confirmed.
The winger dovetailed well on the left flank with Josko Gvardiol who twice went close to his first goal for the Club; first dashing onto Walker’s long ball but firing straight at Henderson, then from a tighter angle that was touched wide.
Palace were finding it impossible to break away but they finally had an opportunity when Mateta chased a long ball. Ederson slipped as he came out to get to the ball first, catching the striker and receiving a yellow card with the visitors wanting a stronger punishment. It did result in Palace’s best effort of the opening 45 minutes with Olise curling the free-kick inches over the bar.
City thought they had a second at the start of the second half when Alvarez’s cross ball evaded any touches and drifted into the net. But Rodrigo was offside and his attempt to head it in was seen as interfering with play.
Our wait for a second would last just 60 seconds with Lewis doubling our lead. Grealish drifted inside and fed the ball to Rodrigo, who tried to bundle his way through only for it to fall loose for Lewis to lash inside the near post.
Bernardo then almost capped a typical performance that matched skill and hard work with a wonderful curling effort that Henderson tipped just wide of his post.
It was to be a crucial intervention and set up a sting in the tail from the visitors.
First Jeffrey Schlupp broke away to cut the ball back for Mateta to slide home.
Then in the 93rd minute, Foden’s attempted clearance saw him catch Mateta and Olise rolled in the equaliser from the spot as Palace snatched an unlikely point.
Subs: Ortega Moreno, Phillips, Kovacic, Gomez, Akanji, Nunes, Bobb, Susoho
PALACE: Henderson, Ward (Ozoh 34), Andersen, Guehi, Clyne (Eze 90), Mitchell, Riedewald (Ahamada 81), Richards, Olise, Schlupp (Franca 81), Mateta
Subs: Matthews, Tomkins, Ebiowei, Ola-Adebomi
PLAYER OF THE MATCH
Grealish has now scored in his last three Premier League appearances in what is his best run for the Club.
After strikes against Tottenham and Luton, he opened the scoring with a well-taken goal to find a way through a stubborn Palace defence.
He was the only City player to feature in all of our games this week and made a big contribution in all of them.
After a frustrating period out of the side through injury, Grealish has been back in his best form before the turn of the year, but was left frustrated for a second successive appearance at the Etihad.
City youngster Lewis capped a fabulous week for the Academy with his first Premier League goal for the Club.
The 19-year-old has played more minutes in the Champions League than any City player this season, generally in an advanced midfield role.
He started there again Palace and made no mistake when he found himself with a shooting opportunity inside the box, smashing in City’s second.
With fellow graduate Foden well established, and claiming an assist for Grealish’s opener, it’s been a magical few days for the Academy.
“It’s not bad luck. We give away two points. You see the chances we create and conceded. We are not able to close the games.
“We were good but in the end if we give away a penalty we don’t deserve it. Like the Chelsea penalty, we don’t deserve it.
“Spurs and Liverpool were excellent but we were unable to win the games. We were not consistent enough.”
RICO LEWIS REACTION
“It’s really unfortunate but we’ve got to look at ourselves and look at our individual decisions and then look at us as a group.
“We can’t blame anyone else. We can only blame ourselves for it.
“There’s no complaints [about the penalty]. The ref’s given it as a penalty, it’s a penalty. That’s all I can say. Like I said, it’s down to us. It’s our mistakes. There’s no complaints from us, only to ourselves.”
WHAT IT MEANS
City remain fourth in the Premier League, three points behind leaders Liverpool who have have a game in hand.
City now head to Saudi Arabia to take part in the FIFA Club World Cup for the first time.
We have a semi-final with Japanese side Urawa Red Diamonds at 18:00 (UK) on Tuesday 19 December at the King Abdullah Sports City Stadium in Jeddah.
Victory would see us progress to the final at 18:00 (UK) on Friday 22 December.
We are next back in Premier League action after Christmas when we travel to Everton on Wednesday 27 December for a 20:15 (UK) kick-off.
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