Chelsea pounced on Arsenal's implosion at Etihad Stadium by edging past Crystal Palace 2-1 at home, with Ramires scoring the winner to lift Jose Mourinho's team provisionally into second place.
But approaching the halfway stage of the campaign, City is likely to be most people's favourite for the title after following up big home wins over Manchester United and Tottenham already this season with another masterful attacking display against Arsenal.
What had been the tightest defence in the league was ripped apart, with City's eighth straight home win sealed by goals from Fernandinho (two), Sergio Aguero, Alvaro Negredo, David Silva and Yaya Toure.
City enhanced its tag as the league's entertainers — it has 35 goals in eight home matches, including six past Spurs and four past United — and is a point adrift of Chelsea in third.
"It was a very complete game in attacking," City manager Manuel Pellegrini said. "It is not easy to score six goals against Arsenal, the best defence in the Premier League."
Everton brushed past Fulham 4-1 with three late goals to jump to fourth, while Newcastle drew 1-1 with Southampton in a match that saw the referee receive a bloody nose after accidentally colliding with a player, and ended in a scuffle between the two benches.
West Bromwich Albion fired head coach Steve Clarke hours after a 1-0 loss at Cardiff, the visitors' fourth reverse in a row, and there were 0-0 draws for West Ham-Sunderland and Hull-Stoke.
Arguably the standout match this season lived up to its billing, with weary Arsenal run ragged by City less than three days after the Gunners' grueling defeat in the Champions League at Napoli.
Arsenal's title credentials were always going to be tested in this crucial three-game period, starting with last weekend's 1-1 draw at Everton and ending with a home match at Chelsea on Dec. 23, and cracks have been found.
"We made too many mistakes," Arsenal manager Arsene Wenger said. "Our strength until now was our defensive discipline but that went as the game went on."
The prolific strike pairing of Aguero and Negredo put City 2-1 up by halftime, with Theo Walcott's goal having made it 1-1.
Fernandinho scored in the 50th, moments after Aguero went off with a calf injury only for Walcott to score again, but Arsenal's creaking defence was breached in the final 24 minutes by Silva, Fernandinho and Toure's penalty. Per Mertesacker netted Arsenal's other goal in injury time.
Arsenal midfielder Jack Wilshere could face disciplinary action after being pictured raising his middle finger toward City's fans during the second half.
With Liverpool not playing until Sunday, Chelsea is Arsenal's closest challenger after an unconvincing win over Palace at Stamford Bridge.
Fernando Torres scored in the 16th minute for the Blues before Joel Ward set up Marouane Chamakh to equalize for the visitors in the 29th. Six minutes later, Ramires grabbed the winner with a right-footed shot from outside the area to the top left corner.
Everton maintained its challenge for a top-four finish by scoring three goals in the final 17 minutes to see off Fulham.
Leon Osman's 18th-minute goal in his 300th league game put Everton ahead but Dimitar Berbatov equalized from the penalty spot in the 67th.
Seamus Coleman regained the home side's lead before Gareth Barry and Kevin Mirallas completed the victory.
The Newcastle-Southampton game ended with ugly scenes on the sidelines as coaches on both benches clashed in reaction to a foul on the pitch. The goalkeeping coach from each team was sent off.
Earlier, referee Mike Jones required treatment for a bloody nose after being floored by the flailing arm of Newcastle midfielder Moussa Sissoko.
Peter Whittingham scored the second-half winner for Cardiff against West Brom, which proved to be the end for coach Clarke after 18 months in charge at The Hawthorns.
On Sunday, it's: Aston Villa vs. Man United, Norwich vs. Swansea and Tottenham vs. Liverpool.