Jurgen Klopp's side had the opportunity to extend their lead over City to 10 points with a win, but a stylish showing from the Etihad side cut the deficit to just four points.
Leroy Sane's second-half strike was enough to edge the clash, with Roberto Firmino having cancelled out Sergio Aguero's postage-stamp opener.
And while Aguero's unstoppable strike would have troubled even the best backlines, Babb singled out Lovren due to his overall "sketchy" performance.
“To say that Aguero specifically targeted Lovren, I'm not too sure,” the former Ireland international told Sky Sports.
“But if you look across that back line you would probably say the weakest link is Dejan Lovren – and he pretty much proved that last night.
“Even towards the end when Liverpool were pushing forward and [Virgil] van Dijk was up, Lovren was playing straight balls into the box.
“You need to angle them so there's a better chance for the second ball and the knock-down. He had a sketchy game at best.
“But what can you say about Sergio Aguero? He's genuinely a world-class striker and a great asset for City.”
Aguero continued his record of scoring in every home match against Liverpool with his opening strike, and former Man City man Darius Vassell echoed Babb's praise of the Argentine, citing him as a perfect example for youngsters to follow.
“I always go to Aguero for ability and the runs he makes and the decisions that he makes in the penalty area,” Vassell said.
“When he did get in the box he was very clinical. At that moment in the game he showed his true qualities.
“It's the angles of your runs, where you can take defenders and the quality of setting yourself up to get a strike at goal.
“He's one of the best at that and we use him as an example.”