The Gunners have led the way since the third week of the season but were knocked off the summit as City secured a 3-1 victory in an enthralling encounter.
Kevin De Bruyne had put City in front before Bukayo Saka levelled for Arsenal from the penalty spot – but the visitors would strike twice after the break as Jack Grealish and Haaland, an injury doubt ahead of the game, secured a vital three points.
Arsenal have now lost three of their last four in all competitions as their title tilt has taken a wobble, although they only sit second by virtue of a worse goal difference and do have a game in hand on Pep Guardiola’s men.
The atmosphere inside the Emirates Stadium was crackling even before kick-off, the gravity of the occasion lost on no one as City aimed to entirely erode the eight-point lead Arsenal had once held.
Arsenal started well, Eddie Nketiah seeing a shot blocked after Granit Xhaka – without his usual midfield partner Thomas Partey due to a muscular injury – intercepted a pass to set the forward in behind.
Haaland had his first sniff of goal after 15 minutes, getting in behind the recalled Takehiro Tomiyasu but not managing to get a shot on target from an acute angle.
The best chance of the early stages fell for Nketiah but he could not even hit the target with a header from a pinpoint Oleksandr Zinchenko cross.
City would break the deadlock soon after, a combination of poor defending and world-class finishing putting the visitors ahead.
A long ball over the top was nodded towards Tomiyasu and he looked to play a pass inside to goalkeeper Aaron Ramsdale but he did not put sufficient power on his effort.
It was intercepted by De Bruyne, whose first-time shot was perfectly weighted, lifted over Ramsdale and just inside the post.
Arsenal reacted well to the setback and forced City into time-wasting and long-balls, Ederson eventually shown a yellow card for delaying a number of restarts.
The City goalkeeper was, therefore, arguably lucky to stay on the pitch as referee Anthony Taylor pointed to the penalty spot after he clattered into Nketiah.