Karim Benzema's 27th-minute strike was enough to see the reigning European champions past a makeshift Reds side and into the knockout stage at a canter.
Karim Benzema scored the decisive goal for the reigning European champions in the 27th minute, peeling away from Kolo Toures and applying a clinical finish to Marcelo's whipped cross from the left flank.
Cristiano Ronaldo endured a rare off-night and Brendan Rodgers introduced Steven Gerrard and Raheem Sterling in the second half in a bid to find a Liverpool equalizer, but the visitors rarely troubled the Madrid defense.
Rodgers made seven alterations to the the side that suffered a dispiriting 1-0 Premier League loss at Newcastle on Saturday - Gerrard, Sterling and Mario Balotelli among those on the bench as their boss cast an eye towards this weekend's Premier League clash with leaders Chelsea.
Simon Mignolet experienced a predictably busy evening but his teammates offered a growing threat in the second half, with Adam Lallana the closest to finding an equaliser.
Real poured forwards once more in the closing stages as they looked to make sure of a 12th consecutive win in all competitions, but Ronaldo was unable to equal Raul's Champions League all-time record of 71 goals.
Fresh from a brace including a spectacular volley in Real's 4-0 win at Granada on Saturday, James Rodriguez forced Mignolet to palm an early 20-yard effort behind at full stretch.
The Belgian goalkeeper was called into action again in the 10th minute when an error from Martin Skrtel allowed Benzema to tee up Ronaldo.
A handful of important blocks from the defenders stationed in front of Mignolet saw Liverpool weather the early pressure and eventually play with increased assurance, but they fell behind with 27 minutes played.
Isco exchanged passes with Ronaldo to find Marcelo and the left back crossed for Benzema to steer the ball into the roof of the net from close range.
As it did in Liverpool, Real sought a swift second to kill off the game after opening the scoring - Mignolet turning away a stinging Ronaldo free kick before Kolo Toure touched a lofted pass from Raphael Varane onto the roof of his own net under pressure from Benzema.
Ronaldo uncharacteristically missed his kick on the end of Luka Modric's chipped 39th-minute through ball and, although Emre Can was wasteful on a rare venture into the Real box, Liverpool was grateful to see no time added for first-half stoppages.
Mignolet continued to get the better of Ronaldo in their personal duel, grasping a 49th-minute side-footed effort at the second attempt.
Alberto Moreno then gave Iker Casillas his first save of the night in the Madrid goal and the Liverpool fullback also played in a pass for Lallana to cleverly turn and slide a shot narrowly beyond the far post.
Fabio Borini's 61st-minute free kick deflected wide off a disorganised Real defensive wall and that relatively rocky period prompted Carlo Ancelotti to bring on Gareth Bale for Rodriguez, the Wales winger ending three weeks on the sidelines with a gluteal injury.
As Rodgers prepared to send on Gerrard and Sterling to exploit an increasing sense of Real vulnerability, Toure produced an excellent last-ditch challenge to thwart Ronaldo.
Benzema was unsuccessful from another teasing Marcelo cross in the 69th minute before Bale struck the crossbar as the Brazilian supplied further ammunition.
As it was, Liverpool retained a measure of pride but three straight European defeats means there is no further room for error in its remaining group encounters with Ludogorets and Basel.