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Leading 1-0 at the interval after easily controlling the first half, United visibly withered as City grabbed the incentive in the second half.
It was difficult to understand the United game plan as they sat back and allowed City to come at them as the game wore on.
That may be fine when you have a comfortable three-goal winning margin, but not in a derby match when only one goal in front.
Driven on by the brilliant Eyal Berkovic, City had carved a number of openings.
Then, with five minutes to go, City manager Kevin Keegan threw on subs Ali Benarbia and Shaun Goater for Berkovic and the near invisible Robbie Fowler.
With his first touch, Benarbia rolled a free-kick on the right side of the United box to City's other substitute Shaun Wright-Phillips on the edge of the penalty area.
Wright-Phillips chipped the ball forward and Goater, with his first touch, nodded the ball into the corner of the net from ten yards deep inside a ruck of players.
City could have even snatched all three points two minutes into injury time when Marc-Vivien Foe's shot from the right side of the United box deflected off Reds defender Mikael Silvestre.
The ball beat United goalkeeper Roy Carroll and hit the bar. The rebound fell to Nicolas Anelka, who handled the ball, before laying it back for Goater to net, but the effort was ruled out by referee Alan Wiley for the earlier offence.
City's second-half surge came in contrast to a first half dominated by United.
Ryan Giggs forced a good save from City keeper Carlo Nash after 14 minutes and four minutes later, United took the lead.
The magnificent Roy Keane played a defence-splitting pass to Giggs on the left side of the City box. He cut the ball back to the far post where Ruud van Nistelrooy was left with an easy right-foot tap-in from close range.
Nash made a fine save in first-half injury time to claw away David Beckham's raking right-wing cross with van Nistelrooy ready to pounce.
United should have had a penalty when David Sommeil brought down Beckham in the City box, only for referee Wiley to award a corner.
But United lacked their usual killer touch, while City showed more grit in the second half.