The defending champions ceded ground to Jurgen Klopp's side with back-to-back defeats versus Crystal Palace and Leicester City, and they once again let an early lead slip as Pierre-Emile Hojbjerg – later sent off for a reckless lunge on Fernandinho – cancelled out David Silva's 10th-minute opener.
A James Ward-Prowse own-goal on the stroke of half-time, moments after the Southampton midfielder had penalty claims rejected, and Sergio Aguero's injury-time header steadied City nerves before the break.
Pep Guardiola's men replace Tottenham in second and trim the deficit to the summit to seven points, while Burnley's win over West Ham means only goal difference is keeping Southampton out of the bottom three.
Charlie Austin stole in behind the City defence, only for heavy touch to let him down, before Riyad Mahrez and Bernardo Silva had no such problems down the Southampton left as they deftly set up David Silva for an assured finish.
Mahrez and Sergio Aguero both went close to doubling City's advantage but, after Ederson brilliantly kept out an Austin header, makeshift left-back Oleksandr Zinchenko carelessly gave away possession in the 37th minute and Hojbjerg clattered home emphatically.
Zinchenko was then fortunate to see a clumsy challenge in the box on Ward-Prowse go unpunished – the Southampton man's disappointment compounded as he lucklessly put Raheem Sterling's cross through his own net.
An eventful half for the Ukraine international concluded with a pinpoint cross that Aguero headed beyond Alex McCarthy's lacklustre attempts to save.
The Southampton goalkeeper partially redeemed himself by standing up to Sterling when a slick one-two with Bernardo Silva in the 55th minute picked apart his defence.
City were again close to a fourth when Aguero turned to lash against the top of the crossbar left-footed.
Mahrez was substituted after he missed an 80th-minute one-on-one, while Hojbjerg was dismissed for his ugly challenge late on.
What does it mean? All eyes on the Etihad on Thursday
The closely fought title battle many have anticipated this season has threatened to go up in smoke over recent weeks, with City buckling under the strain of Liverpool's relentless pace. Guardiola's men again showed vulnerabilities before half-time that will not have gone unnoticed on Merseyside, but victory over their rivals would trim the deficit to four points and set up a 2019 to remember in the Premier League.
Danilo adds sharpness to City
Benjamin Mendy's knee injury and Fabian Delph's red card at Leicester necessitated Zinchenko's latest free-form interpretation of the left-back role, but right-back has also been a problem for City of late, with Kyle Walker turning in a succession of tired performances. Danilo's return from an injury-ravaged spell has taken the England defender out of the firing line. The Brazilian snapped into early challenges and passed sharply to get the visitors up and running at St Mary's. A move over to left-back to reintroduce Walker and spare Zinchenko from Mohamed Salah et al might be in the offing this week.
McCarthy comes up short
Goalkeepers are a notoriously self-critical breed and McCarthy will not look back on this performance with any particular fondness. It feels harsh to be too critical over the Ward-Prowse own-goal, although the Saints keeper did get a decent enough touch on the deflected ball. Aguero did well to direct his header down but, if Southampton are to succeed on such tough assignments, those are saves McCarthy has to be making – as he belatedly did from Sterling and Mahrez after half-time.
Key Opta Facts:
- Manchester City have won five consecutive Premier League games against Southampton for the first time.
- Man City have failed to keep a clean sheet in each of their last 10 competitive matches – their longest streak since a run of 10 ending in February 2015.
- Bernardo Silva has been directly involved in 10 goals in 19 Premier League games this season (five goals, five assists), equalling his total in 2017-18 in 35 games (six goals, four assists).
- Sergio Aguero has scored 50 Premier League goals under Pep Guardiola, 16 more than any other player has for the club under the Spaniard.
A season-defining outing awaits City, while a similarly tricky task is on the agenda for Southampton when they travel to Chelsea on Wednesday.