Jamie Redknapp, the game's outstanding performer, put Liverpool ahead after 23 minutes. Then, with five minutes to go, Steve Bruce deflected Steve McManaman's shot past his own goalkeeper to secure the points.
To compound the Manchester United captain's gloom, he was booked and has now reached 41 disciplinary points. He will probably miss four games, including the FA Cup semi-final against Crystal Palace or Wolves.
Now, suddenly, there is a gap. When the dust settled yesterday United found themselves still six points behind Blackburn Rovers, the Premiership leaders. Both sides have eight matches left. "We needed to win this one," a gloomy Alex Ferguson admitted.
Even before the match started there was drama as Andy Cole discovered that no one is guaranteed a place in United's cast of stars. Two goalless games after he scored five against Ipswich, the £7m man was dropped. Officially, he had a thigh strain, but it did not show when he finally joined the fray. More likely there was no room for him in a tactical pattern that sought to confuse Liverpool's three-man central defence.
Among that trio was Mark Wright, recalled for his first game in almost a year so Liverpool could retain their defensive shape despite the suspension of Rob Jones. A midweek experiment with a flat back four had led to a disastrous 3-2 home defeat by Coventry. Wright went on to show just how good a player he is when he puts his mind to it.
The atmosphere at the kick-off was spine-tingling in its intensity, with the Kop in better voice than for many months. Within a minute they had something to cheer as Roy Keane clattered into Steve McManaman and was booked. As Jamie Redknapp had already swung an arm at Ryan Giggs - without making contact - a stormy afternoon beckoned, but the referee, Gerald Ashby, gave an admirable display.
He did book Redknapp soon after, for a late tackle on Denis Irwin, but the point had been made and tempers calmed. The match remained desperately tight however.
For 24 minutes it simmered; Liverpool probed while United pulled back and sought to hit them on the break. Then, just as United seemed the more dangerous, Liverpool brought the game to the boil. The goal came, as might be expected, from a counter-attack. Mark Wright headed a cross clear to McManaman and he drove into rare space before finding John Barnes.
Briefly the attack stuttered as Barnes was halted, but Liverpool had penetrated United's outer defence. Barnes managed to hook the ball to Robbie Fowler, whose pass found Redknapp in space as Rush dummied Ince. The finish was perfect.
As Liverpool dominated the rest of the half, Fowler, released by Redknapp, could have made it two seven minutes later, but Peter Schmeichel made a superb save. United, with Cole now on, came back strongly in the second period and David James made fine saves from Ryan Giggs and Mark Hughes just before the hour.
But there were few other chances and, with five minutes left, Michael Thomas crossed from the right, McManaman shot, and Bruce could only divert the ball past Schmeichel.
That sparked off the Anfield party. There was a chorus of "Always look on the bright side of life", to make their guests feel at home, then a rendition of "You'll never walk alone", complete with scarves and flags, that rekindled memories of the glory years.
It was Liverpool's first win over United since the penultimate weekend of the 1992-93 season. That win secured Leeds the title at United's expense. There are still two months to go but this win may have done the same for Blackburn.
Liverpool (3-5-2): James; Wright, Ruddock, Babb; Scales, McManaman, Redknapp, Barnes (Thomas, 61), Bjornebye; Rush (Walters, 87), Fowler. Substitute not used: Warner (gk).
Manchester United (4-3-3): Schmeichel; Irwin, Bruce, Pallister, Sharpe (Cole h/t); Ince, McClair, Keane (Butt, 83); Kanchelskis, Hughes, Giggs. Substitute not used: Pilkington (gk).
Referee: G Ashby (Worcester).
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