Meanwhile, two-time defending champions Real Madrid have been tasked with a clash against Juventus - a repeat of last season's final - while Barcelona will tackle Roma and Sevilla's reward for ousting Manchester United is a meeting with Bayern Munich.
It is, however, the clash between the two Premier League clubs that is the tie of the round.
The clubs have played twice already this season, with City getting the better of Jurgen Klopp's men 5-0 when the sides met in September - a match infamous for Sadio Mane's challenge on home Ederson, which left the goalkeeper with a gruesome injury and saw the Liverpool attacker sent off.
Klopp's side have better memories of their meeting in January, though. The Reds won a storming match at Anfield 4-3, with Alex Oxlade Chamberlain, Roberto Firmino, Mane and Mohamed Salah all on target. Leroy Sane had levelled for City at 1-1, but their late rally through Bernardo Silva and Ilkay Gundogan proved fruitless.
"I’ve said it before and it’s still the truth, it’s always common in a draw that you’ll get your neighbour, more or less, but to be honest I don’t mind, really," Klopp told the club's official website. "It is exactly like it was before – we take what we’ve got. Now it’s Manchester City, let’s go.
"We’ve lost once and we’ve won once against them in the league – and I don’t think they thought before the best draw they could have got is Liverpool. That’s a sign for us and how strong we can be.
"We are for sure not the favourites in this round, but in the last eight there are not a lot of favourites - maybe two of them, Bayern and Barcelona – but thank god it’s football and nothing is decided. "We have a few games to play until then, but I am really looking forward to it and we will give it everything.”
Manchester City director of football Txiki Begiristain said: "It's a very difficult one. We like to travel and to go to another country in the Champions League but it is what it is.
"We know each other very well, they are a very offensive team, the truth is it is going to be a great couple of games and we are going to see good football."
It is just the second time in history that City have reached the last eight of the competition. In 2015-16, they defeated PSG 3-2 on aggregate but lost to Real Madrid in the semi-finals.
Liverpool, on the other hand, have won the European Cup on five occasions.
The other eye-catching tie sees Juventus seek revenge upon Real Madrid for the 4-1 defeat they suffered in last season's final at the Principality Stadium, Cardiff. Cristiano Ronaldo's double that day sent Zinedine Zidane's side en route to become the first team to win the Champions League in successive years, but they have endured a disappointing season domestically and are out of the title running in La Liga.
Man City v Liverpool and Barcelona v Roma will be played on April 4 and 10, while the other two ties will be played on April 3 and 11.