Stuart Pearce's side were far superior in the second half and almost snatched the points when DaMarcus Beasley's effort cannoned off the crossbar.
They also had two penalty appeals turned down by referee Uriah Rennie as they pushed a disappointing Liverpool to the limit.
But the result, in front of their biggest home crowd of the season of 45,883, stretched City's unbeaten run in the Premiership to five matches. It was also their fourth clean sheet in that period.
The Liverpool players wore black armbands for tomorrow's 18th anniversary of the Hillsborough Disaster, in which 96 fans died and, in a heartfelt gesture, City midfielder Joey Barton, a Liverpool lad himself, laid flowers in front of the away supporters immediately before kick-off.
The visitors started strongly and should have been ahead inside the opening five minutes when Steven Gerrard, who was given licence to roam by Rafael Benitez, found Jermaine Pennant on the edge of the penalty area, but he shot tamely at goalkeeper Andreas Isaksson.
Both sides showed their attacking instincts in a decent first half, and City striker Darius Vassell was denied a clear shooting opportunity by Alvaro Arbeloa, while team-mate Emile Mpenza sent a header agonisingly wide.
Liverpool's Xabi Alonso, famous for his long-range goals against Luton Town and Newcastle United, nearly caught out Isaksson with a shot from inside his own half, but the ball sailed over the crossbar.
City were quick to exploit any freedom afforded to them down either flank, but their crosses were either over-hit or too close to goalkeeper Jose Reina.
At the other end, Pennant's low corner only needed a decent touch by Javier Mascherano or John Arne Riise. However, neither player was able to make good enough contact with the ball.
City were able to impose themselves more on the game as the half wore on while Liverpool's passing became disjointed and Dirk Kuyt, playing as the Reds' lone striker, struggled to find support in attack.
City worked tirelessly and were quick to close down anyone in a Liverpool shirt.
Gerrard and Pennant tried their luck from long range early in the second period, as the visitors tried to break through the wall of blue shirts, who were marshalled brilliantly by Sylvain Distin in the heart of defence.
City thought they had claims for a penalty when Nedum Onuoha appeared to be bundled over by Daniel Agger, but only a corner was awarded by referee Rennie.
From it, City came agonisingly close to scoring when Beasley's strike from the left-hand edge of the penalty area ricocheted back off the woodwork.
Liverpool threw on Peter Crouch with 15 minutes to go in a bid to increase their options up front.
However, City, now free from the threat of relegation, looked the more likely to score and Liverpool's play deteriorated in the final half-hour.