Erling Haaland and Riyad Mahrez twice put us in the lead only to see those advantages wiped out by Liverpool's Fabio Carvalho and Mo Salah.
In the end, it was Nathan Ake's header just short of the hour mark that proved the difference between the two sides.
City now progress to the last eight of the Carabao Cup, keeping alive hopes of a seventh success in this competition since 2014.
We will face Southampton in that one but what were the patterns of play that decided our fourth round all-star clash?
While it's all about how many you score, the number of chances a side creates is a key indicator in terms of the performance.
And with so many of our players away over the last five weeks for the 2022 World Cup, you could well have expected their to be a disconnect amongst our creative forces.
However, the Blues had 18 total shots creating an xG of 2.30. That's far in excess of what Liverpool could muster with an xG of 0.69 from their seven attempts.
As always, much of that attacking threat came because of our high number of successful passes. Last night we completed 505 of them in comparison to Liverpool's 359.
The telling stat is that we played 216 passes in Liverpool's half while our opponents managed just 94 in ours.
The below graphic demonstrates how high up the pitch we were throughout the match.
De Bruyne didn't enjoy the best World Cup with Belgium but if his performance in this one is anything to go by, that's nothing for City fans to worry about.
The midfielder was at his sparkling best both in and out of possession.
When City didn't have the ball, he worked hard as part of the press to restrict Liverpool's passing through the midfield.
That hard work then bore fruit when we were back in control, with De Bruyne already stationed high up the pitch to focus on making the vital final pass.
Twice he did just that, crossing for Haaland and Ake's goal - the second in particular a delightful ball just out of reach for the defence before dropping perfectly for our man.
He completed just 37 passes in the match, the joint eighth-most on the pitch. That proves how his focus was on the final ball, not necessarily being part of the build up from deeper.
The outstanding player on the pitch, he looks in the mood for what's to come in the next few months.
Liverpool's attackers have made a habit of embarrassing some of the best and most experienced defenders in world football in recent seasons.
That was of no concern to 18-year-old Academy graduate Rico Lewis on just his third start for the Club.
The Bury-born defender held his own against the international stars of Mo Salah, Darwin Nunez and Thiago Alcantara.
As you can see from the below graphic, he certainly covered plenty of ground.
Asked to move into midfield when the Blues had the ball, he was brave in possession in tight areas the likes of Rodrigo and Ilkay Gundogan are used to operating in. He completed 61 passes - the third most on the pitch.
Out of possession he was aggressive in the tackle and made a stunning eight recoveries in order to fight to win the ball back for his side.
It's little wonder Pep Guardiola described him as a City star in the making in his post-match press conference.
Pep loves the cup
This was our manager's 26th win in the Carabao Cup from just 29 matches in the competition across his seven seasons in England.
That is a whopping win percentage of 89.65%.
When you consider that one of those three losses was the 2019/20 semi-final first leg against Manchester United that we turned round at Old Trafford, it makes that record even more impressive.
We have already won this competition on four occasions in Guardiola's six full seasons at City. It would mean a lot to him to make it five come 26 February.