Ian Rush rolled back the years again to score his 13th goal of the season and put Liverpool through to the semi-finals of the Coca-Cola Cup.
Liverpool's verve and style finally triumphed over the Gunners' resilience and the veteran Wales striker splendidly finished off a well-practiced free-kick routine just before the hour.
John Barnes touched the ball aside after John Jensen's foul on Jamie Redknapp had produced the set-piece on the edge of the box.
And Neil Ruddock's slide-rule pass laid the Arsenal defence as bare as the streaker who did press-ups on the pitch in the closing minutes.
Rush's perfect finish totally denuded the London team's amazing run of 25 away cup-ties without defeat.
It also stretched Liverpool's unbeaten sequence to 11 matches, but this was also the third defeat in four games for George Graham's Highbury side.
Although they never stopped battling, there was no way back for Arsenal after Rush's strike.
Ian Wright, now without a goal in four games, had desperately thin service and finished a frustrating night without a serious effort on target.
Liverpool's deserved success prevented a major row over a first-half incident in which they seemed to be deprived of a clear penalty.
David Seaman gave his defence a scare in the opening minute when he mis-kicked a back-pass from Steve Bould straight to the lurking Robbie Fowler. The young striker tried to put Steve McManaman through but the Gunners' goalkeeper recovered his ground to block the effort.
It inspired Liverpool to an all-out assault, which had the Londoners at full-stretch and brought bookings for Bould and Stefan Schwarz as they desperately tried to stem the tide of red shirts around their penalty area.
Lee Dixon hooked off the line in the 18th minute, when it seemed Rush must score at the far post after McManaman had forced his shot through Seaman's smothering embrace.
By this stage, Wright and Campbell were running up blind alleys trying to feed on the scraps which were scrambled out of Arsenal's heavily-populated defence and midfield.
The Kop exploded with fury when referee Philip Don ignored a linesman's flag and waved play on as Dixon appeared to handle the ball on the ground after Scales had driven a great chance against Seaman's body.
And Arsenal survived again before the break when Rush, six yards out, headed McManaman's cross downwards, but straight at the grateful Seaman.
Highbury boss Graham admitted: "I have no complaints. This reminded me of the Liverpool of old - top quality. hey are the team in form at the moment and are capable of going all the way. They play an excellent system, but even apart from the skill factor, they have players who work very hard for each other."
Graham received all-out commitment from his defenders as they tried to stem Liverpool's stylish flow: "We've got to work a lot harder at retaining the ball and running off it in the opposition's half of the pitch."
Ruddock revealed that the free-kick ploy was only a late addition to the first team's repertoire: "We practised it for the first time at the training ground today. Arsenal always like to hold the line against a direct free-kick but it was my job to collect a short one and play it through for whoever made the run. It worked a treat and was a great moment for me because I was with Spurs a couple of seasons ago when Arsenal knocked us out of an FA Cup semi-final and it is lovely to get your own back."
Liverpool boss Roy Evans said: "It is a nice compliment for George to say it looked like the old Liverpool, but we are trying to build our own image. The foundations that Bill Shankly laid down are still here, but everything depends on the players working for each other. I thought we did well because Arsenal have been the best cup side for maybe the last 10 years. It was frustrating we couldn't turn our chances into goals in the first-half but I just said to them at half-time to 'carry on as you have been doing'. We've still got a bit to do to win this competition, but our work at the back is pleasing me as much as anything. That's five games without a goal against us and I didn't think we looked like conceding one tonight."
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