Mike Newell returned to his home town to sink Liverpool at Anfield with his third goal of the season.
Newell cracked home a left-foot half-volley into the top corner after Neil Ruddock had missed a 54th minute corner from Jason Wilcox. The former Everton striker, a self-confessed Liverpool fan, consigned Graeme Souness' side to a second successive defeat and a third reverse in four games.
And as at Coventry, it was a corner kick that caused Liverpool's demise.
Newell came close to adding a second goal seven minutes from the end after a thundering shot by Wilcox had deflected off defender Rob Jones and rebounded to him via the crossbar. But Liverpool goalkeeper Bruce Grobbelaar scampered across his goal to push out the effort but Newell had already done enough to claim the points and prevent Liverpool from climbing to third in the table.
Instead it was Blackburn, unbeaten away from home this season, who claimed third spot, even with 3.5 million pound striker Alan Shearer yet to start a match and sitting this one out on the bench.
Liverpool were deeply disappointing and, apart from a Bobby Mimms save to keep out Steve McManaman's angled shot, they hardly tested the visitors' goal. And their frustrations boiled over midway through the second half when a wild Jan Molby tackle on Kevin Gallacher sparked an ugly melee. Amazingly, Molby was not cautioned by Birmingham referee Mike Reed while scufflers Mark Wright and Mike Newell escaped with a lecture.
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