Pep Guardiola's team looked like champions-in-waiting with a ruthless win over the team that has led the way for much of the season.
Arsenal is still out in front in the standings, but by the time Erling Haaland completed the scoring in stoppage time, the Londoners' title challenge looked effectively over.
City remains two points behind the league leader but with two games in hand appears to be on course to be crowned champion for the third year in a row.
"It is in our hands,” Guardiola said. "Until today, I preferred Arsenal’s position because if Arsenal beat us it is in their hands. Now it’s our destiny."
After 17 games without defeat, it is hard to see City slipping up from here.
Manchester City's Erling Haaland celebrates at the end of the match against Arsenal in Manchester, England. AP
Arsenal, meanwhile, may struggle to recover from such a chastening loss, which came on the back of three straight draws that had taken the momentum out of its title charge.
Mikel Arteta's team has exceeded all expectations by taking the challenge this far, but the pressure appears to have taken its toll in recent weeks.
Two-goal leads were thrown away against Liverpool and West Ham, while it took a late comeback to salvage a point against last-place Southampton last week.
That damaging sequence meant Arsenal needed to win against City to stay in control of the title race.
"Those players deserve a lot of credit after nine-and-a-half months being here," the Arsenal manager said. "And there are still five games to play. In 22 years in this country I’ve seen a lot of things and there are not two equal games in this league.
"First we have to lift our players who suffered tonight, playing against an exceptional team. But we are an exceptional team as well.”
City could go top of the standings with a win against Fulham on Sunday.
Manchester City's Kevin De Bruyne scores the opening goal against Arsenal in Manchester, England. AP
The biggest test, however, has already been passed after beating Arsenal for the third time this season — including a win in the FA Cup.
While neither Guardiola nor Arteta would accept this match was a title decider, it put City firmly in control and it would take a major drop off for the defending champions to hand the initiative back to Arsenal.
After struggling for consistency for the first half of the season, City has become stronger as the campaign has gone on - to the point that it seems unstoppable right now.
Haaland struck his 49th goal of the season on Wednesday, while Kevin de Bruyne was at his inspirational best, scoring twice.
"Kevin is a master of the assist with or without Erling,” Guardiola said. "Erling scores goals all the time with or without Kevin. But being together, when teams press so high and those balls with space behind, they are so dangerous and we use it.”
Pep Guardiola reacts during the match between Man.City and Arsenal at the Etihad Stadium in Manchester. AFP
De Bruyne put City ahead in the seventh minute, with John Stones doubling the lead in first-half stoppage time.
De Bruyne scored again in the 54th and Rob Holding pulled one back for Arsenal in the 86th before Haaland's strike.
City remains in the hunt for a treble of trophies, having advanced to the semifinals of the Champions League and the FA Cup final.
For a long time, the Premier League seemed like it might be out of reach, given the pace Arsenal set in winning nine of its first 10 games of the season.
Even after losing to City in February, Arsenal recovered to win seven in a row in the league.
But a combination of City's relentless form and Arsenal's stumble has propelled Guardiola toward a fifth title since taking over at the club in 2016.
Arteta, meanwhile, has to lift his players for the final stretch, even if the wait for a first title since 2004 looks set to go on.
"(We have to) Accept the reality and that is the best way to move forward,” he said. "They were better than us and deserved to win the game. We have to improve and be humble enough to accept that. To do that you will be better.”
City's victory closes the gap on Liverpool at the top to 22 points and means the Reds cannot secure the title when they face Everton in the Merseyside derby on Sunday.
Arsenal’s game at Manchester City on Wednesday was postponed after players from the London club were put into quarantine, making it the first Premier League football fixture
Jurgen Klopp was adamant results remain important to him in Liverpool’s closing games after the newly crowned Premier League champions were humbled 4-0 by Manchester City.
Eighteen Pakistan players and 15 support staff are due to travel to India. Earlier, the PCB had expressed its disappointment with the ICC over the delays.
UAE Equestrian and Racing Federation announced that its four-strong dressage team has passed the vet check and will go on to compete on Tuesday, in the team competition and individual qualification.
Lock Thibaud Flament studied at Loughborough University in England, full-back Melvyn Jaminet had never played a Top 14 game and winger Gabin Villiere was a second-team scrum-half in the French fifth-tier before bursting onto the international scene.
Batting first India reached 116-7 in their 20 overs with Smriti Mandhana (46) and Jemimah Rodrigues (42) putting on 73 for the second wicket. Sri Lanka's chase started badly when they were reduced to 14-3 in the fifth over by a devastating spell from right-arm seamer Titas Sadhu.