Jose Mourinho's men were beaten 2-1 by their rivals at Old Trafford with goals from David Silva and Nicolas Otamendi granting City the victory.
Despite being at home and desperately in need of a win to keep their title hopes alive, United were reduced to the role of spectators for much of the game as City dominated the play.
By the end of the match, Mourinho's side had the ball for just 35 per cent of the time, which is their lowest percentage at the venue in the competition since the 2003-04 campaign - 14 years ago.
2 – Manchester United have conceded two goals at Old Trafford in the Premier League for just the second time under Jose Mourinho (also conceding two v Man City in September 2016). Flashback.— OptaJoe (@OptaJoe) December 10, 2017
Silva gave Guardiola's side the lead towards the end of the first half, but United hit back immediately through Marcus Rashford.
However, Otamendi capitalised on a Romelu Lukaku mistake to power his side back in front.
City held on to claim a pivotal victory, one which moves them 11 points clear at the top of the table after 16 games, and United's title hopes are now beginning fade.