Things looked dire for Roberto Mancini's men halfway through the second half as Gary Cahill put Roberto Di Matteo's Blues ahead but Sergio Aguero, from the penalty spot, and Samir Nasri, with help from the returning Carlos Tevez, grabbed two late goals for City who remain just a point in arrears of league leaders Manchester United.
Chelsea had been fairly quiet in terms of out-and-out scoring chances up until the hour-mark when a corner was headed away by Yaya Toure only to see it bobble back off Gareth Barry, under duress from David Luiz, and into the path of defender Cahill whose lashed shot bounced off the leg of Yaya and in past Joe Hart to give the visitors the lead.
City were pushing and pressing for a goal and it came in rather fortuitous circumstances just over 10 minutes from time when Pablo Zabaleta's firmly struck shot from the right side of the area hit the arm of Chelsea substitute Michael Essien with referee Mike Dean pointing to the spot. Aguero stepped up and sent Petr Cech the wrong way to keep his side's title hopes alive with his 17th league goal of the campaign.
With about five minutes remaining, Nasri breathed new life into City's title pursuit when he played a ball into the feet of substitute Tevez who, on his first appearance in about six months, turned with a lovely return pass to the Frenchman who had ran on and managed to slot past Cech to make it 2-1.
There were chances to City earlier in proceedings when Nasri controlled beautifully with his chest on the edge of the area before looping a clever attempt onto the crossbar in the ninth minute before Mario Balotelli pounced on an errant pass from Frank Lampard just prior to the half-hour mark but after advancing towards Cech, the Italian put his effort wide of the far upright from the edge of the area.
In the 56th minute, Nasri's floating cross from the left caused some problems with Cech backtracking to swat it onto the crossbar before Zabaleta's low cross was almost tucked away by David Silva and then Gael Clichy's fiercely struck effort from an angle tested the Chelsea keeper.
Overall, the home team were the better of the two sides on the night and deserved their 15th straight win at home this season as Chelsea tasted their first defeat since Di Matteo took over from Andre Villas-Boas last month.
TRIBAL ASKS: Is the type of win that will give City the strength of character they need to overhaul Man Utd and win the title?
Etihad Stadium, Manchester