Liverpool lost 3–1 to Manchester City at Anfield on Boxing Day 1981, ending the afternoon 12th in the First Division. Defensive mistakes helped City establish a two-goal lead, and Ronnie Whelan's late reply was followed by a third goal from Kevin Reeves.

Asa Hartford put the visitors ahead after nine minutes, turning to drive a low shot past Bruce Grobbelaar. Liverpool threatened an equaliser, but Joe Corrigan kept City's lead intact. He tipped a Kenny Dalglish free-kick onto the crossbar before half-time and later turned a Graeme Souness shot against a post.

The second City goal came from a more damaging mistake. Grobbelaar dropped a high ball, allowing Steve Kinsey to shoot. Phil Thompson handled the goal-bound effort and Kevin Bond converted the resulting penalty.

Whelan pulled a goal back late on, briefly reducing the deficit to one. With a minute remaining, however, Reeves met Kinsey's delivery and the ball went in via the upright and Grobbelaar. City had their third goal and the points before a crowd of 37,929.

Liverpool were left with 24 points from 17 games, nine behind leaders Swansea City, who had played twice more. City stood fourth on 31 points.

The defeat preceded an important change in leadership. Paisley replaced Thompson as captain with Souness, who led the side out for the FA Cup tie at Swansea on 2 January. In his programme notes on 12 January, Paisley explained that he believed the responsibility of captaincy had been affecting Thompson’s form.

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