Second-half goals from Leroy Sane and Raheem Sterling see City come back from a goal down to beat Arsenal 2-1 at the Etihad.
Theo Walcott had put the Gunners ahead after just five minutes and the win takes City up to second, seven points adrift of Premier League leaders Chelsea.
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David Silva scores the only goal of the game as City beat Arsenal 1-0 at the Etihad.
Silva pounces as Mario Balotelli's shot is saved to score on 53 minutes and send Roberto Mancini's side back to the Premier League summit.
Ecuadorian striker Felipe Caicedo scores a 90th-minute consolation as City are beaten 3-1 by Racing Santander in the UEFA Cup.
City still finish as group winners despite the loss and progress to the knock-out stages.
The defeat is not a great surprise given the inexperienced side Mark Hughes fields.