A first home league defeat in 29 games for the Reds leaves Jurgen Klopp’s men two points behind Manchester City and level with Arsenal, who can go top with a victory over Aston Villa later on Sunday.
Eberechi Eze’s early goal handed the Eagles a vital win in their battle for survival as they moved eight points clear of the drop zone.
However, Liverpool’s final season under Klopp is unravelling.
The League Cup winners were on course for a quadruple just a few weeks ago.
But after crashing out of the FA Cup to Manchester United, Liverpool succumbed to a first home defeat in any competition for 14 months when Atalanta stormed Anfield on Thursday to take a 3-0 first-leg lead in their Europa League quarter-final tie.
Klopp’s men have now won just three of their last eight games in all competitions and are showing clear signs of fatigue after already having played 51 games this season.
Slow starts have been a recurring theme of Liverpool’s struggles of late and they were again forced to come from behind.
Alisson Becker made his long-awaited return in goal for the home side but he had no chance when Eze was left with a simple finish from Tyrick Mitchell’s cross.
Palace were millimetres away from a second moments later when Andy Robertson produced a remarkable goalline clearance to deny Jean-Philippe Mateta after Virgil van Dijk’s slip let the French striker through.
Liverpool had to resort to set-pieces to put the Palace defence under pressure in the first half.
Wataru Endo’s scuffed effort came back off the crossbar.
Dean Henderson then produced a stunning save to prevent Luis Diaz from levelling at the back post with an acrobatic effort.
Klopp reacted at half-time with the introduction of Dominik Szoboszlai and Trent Alexander-Arnold’s return after two months out quickly followed when Conor Bradley went down injured.
Diogo Jota and Cody Gakpo were also sent on for the rescue mission from the bench.
Jota looked certain to equalise when picked out by Szoboszlai but the Portuguese forward’s finish hit Nathaniel Clyne on the line with the goal gaping.
At the other end, Alisson showed why he is one of the world’s best goalkeepers with a remarkable stop to turn Mateta’s strike over from point-blank range.
Liverpool galloped immediately up the other end and Curtis Jones slotted wide with just Henderson to beat.
Mohamed Salah had one final chance to at least snatch a point, but his goalbound effort was brilliantly blocked by Mitchell in stoppage time.
Unless Liverpool produce a stunning fightback against Atalanta in midweek, Klopp will have just two more games at Anfield before his momentous reign comes to an end.
But what looked like it could be a glorious goodbye is now in danger of turning into a damp squib.
AFP