Newcastle ended up on the wrong end of yet another Liverpool thriller - and now the ever-growing shadow of a relegation battle is beginning to hang over the Magpies.
Two fine first-half efforts from England midfielder Steve McManaman brought more misery to Newcastle's quickly disintegrating season,
Roy Evans' side maintained their improving position, but on this show they still have a number of defensive worries to sort if they are to challenge for the title.
Steve Watson gave Newcastle hope with a 17th minute lead but certainly in the opening half they were streets behind the guile and craft of the visitors.
Even a vastly improved second-half show, when they had all the possession, wasn't enough to stave off defeat.
They have now failed to win in seven matches.
Boss Kenny Dalglish made four changes from the side which lost at Derby on Boxing Day with skipper Rob Lee returning after a three-match absence with a calf strain.
He also started with Faustino Asprilla and John Barnes who both sat on the bench at Derby.
Evans left his side unchanged as he selected the same starting line-up which beat Leeds 3-1 at Anfield on Boxing Day.
The early nervousness of the home fans was clear for all to hear as the Magpies began showing little signs of confidence or threat to a stylish Liverpool side clearly up for the battle.
However, after a Barnes effort forced a fine low save from David James and an equally brilliant piece of Asprilla skill forced another fine take from the under pressure Anfield keeper it was the home side who took the lead.
Keith Gillespie flung over a fine inswinging free-kick from the left and Watson flung himself forward at the near post to beat James with a glancing header.
Newcastle had a fine passage of play when they threatened to move further ahead and yet the visitors always seemed to have another couple of gears to move up into.
So it proved to be, as gradually McManaman and Oyvind Leonhardsen took control of the game.
Two goals within 12 minutes before the break from McManaman had the home fans thinking more of a relegation fight than the title.
The visitors were so clearly quicker to the ball and all too often on the break they almost outnumbered the home defence.
McManaman's first goal, a flashing drive across Hislop which went in off the far post, was superbly set up by Michael Owen and Robbie Fowler and his second three minutes before the break was superbly created by Owen yet again.
Owen Fowler were clearly enjoying themselves and the threat of more second half goals left the home crowd sipping nervously on their half-time Bovril.
To their credit the home side came out battling at the start of the second half and both Gillespie and Asprilla had early chances, but on both occasions they sent efforts straight at James.
Gillespie then wasted a superb 51st-minute opportunity, after breaking clear well into the Liverpool penalty box, he put too little pace on his final effort which beat James but was easily cleared off his own goal-line by Kvarme, who who had originally given the ball away.
The home side maintained their pressure and in the 59th minute Gillespie was put away by Batty but as James advanced the Northern Ireland winger blazed inches wide before holding his head in his hands.
Jamie Redknapp was the first player to be booked in the 61st minute for fouling Lee as he broke through the middle.
Fowler clipped the top of the Newcastle crossbar with 19 minutes remaining after curling his effort around and over the Newcastle defensive wall.
Tremendous late pressure from Newcastle - Lee forced a brilliant save from James as the keeper spectacularly parried the ball against his crossbar - was not enough.
A battle at the wrong end of the table now looms for Newcastle.
Newcastle: Hislop, Barton (Hamilton 45), Beresford, Pistone, Pearce, Watson, Batty, Lee, Gillespie, Barnes, Asprilla.
Subs Not Used: Given, Ketsbaia, Tomasson, Rush.
Goals: Watson 16.
Liverpool: James, Kvarme, Harkness, Matteo, McAteer, Leonhardsen, Ince, McManaman, Redknapp, Fowler (Carragher 79), Owen.
Subs Not Used: Babb, Riedle, Berger, Friedel.
Goals: McManaman 31, 43.
Ref: G R Ashby (Worcester).
League position: 4th (37 points after 20 matches).
Copyright - Press Association