With an unbeaten record despite underwhelming performances heading into Sunday's match against Manchester United, the champions lost for the first time in their 16th game of the campaign — and they lost to their biggest rivals.
After Robin van Persie scored the winning goal in injury time, United teammate Rio Ferdinand was hit in the head by a coin, leaving him with blood streaming down his face. But it was a mistake on Van Persie's goal that epitomized City's 3-2 loss, and put United six points ahead at the top of the Premier League.
Samir Nasri hid behind the wall of Edin Dzeko and Gareth Barry, while striker Carlos Tevez scurried away from any defensive duties.
"We had only had 2 1/2 players there. We didn't cover very well," City manager Roberto Mancini said. "I think the wall should have been better. I think in the last second we should pay more attention to this situation."
Mistakes like that could thwart City's bid to win a second straight Premier League title, and it came only days after the team was again eliminated from the Champions League.
Throughout City's six-game winless European campaign, Mancini could always take comfort from the unbeaten Premier League run, and the fact no team had been them at home in the league since December 2010.
"It is clear, we need to work hard and stop making mistakes," Mancini said. "We can't continue to go one or two goals behind because it is difficult to recover. We have a good spirit. Now we need to win four or five matches in a row."
City's upcoming games are against teams in the bottom half of the standings: Newcastle, Reading, Sunderland and Norwich.
"We have to be strong mentally and strong in every other way as well, but our championship challenge is not finished," City defender Yaya Toure said. "We have to forget what we have done in the past. This year will be tough, but we have a fantastic squad."
Less than 14 months ago, City routed United 6-1 at Old Trafford. Mario Balotelli, who scored twice in that match, was the team's scapegoat on Sunday.
The Italy striker angered an animated Mancini throughout the game after fading with a lacklustre display that saw him fail to add to his one league goal this season.
"I love Mario but it is important for him to start to think about his job," Mancini said. "He has everything to play well but he can't continue to play like today. We wanted more from him.
"When you have a player that has Mario's quality, you cannot understand why he continues to throw it out of the window. It is incredible," Mancini added. "I have seen players in my life with fantastic quality, but in the end, they did nothing. I don't want Mario to finish like these players. It would be bad for him."
Balotelli was taken off seven minutes into the second half and replaced by Tevez, who energized City.
The hosts wiped out Wayne Rooney's two first-half goals, which were achieved despite City's earlier domination, with Toure and Pablo Zabaleta scoring in a second-half comeback before Van Persie's late strike.
"Last year was fantastic, but we have to realize that sometimes you go through tough periods. We can turn this around," Toure said. "When the chips are down, that's when the tough really get going and we will show why we are champions."
Rob Harris can be reached at http://twitter.com/RobHarris