Xabi Alonso's deflected strike on ten minutes saw the Blues go behind and they never looked like recovering from the shock. Liverpool then produced brilliant containing football, with Jamie Carragher outstanding, to win the game and leapfrog the Londoners at the top of the table.
Chelsea last tasted league defeat on their own soil more than four years ago in February 2004, when Arsenal won 2-1.
The punishing winner came from a throw-in by Alvaro Arbeloa. The ball was poorly cleared and it fell to the left foot of Alonso who struck from 20 yards. The ball deflected off Jose Bosingwa on the way, leaving a hapless Petr Cech to look on in despair as the ball hit the middle of his net.
With Chelsea piling forward, Chelsea found themselves susceptible to the counter-attack and on 16 minutes winger Albert Riera was unlucky to see his shot crash against the side-netting.
Chelsea's first worthwhile attack on 21 minutes saw Salomon Kalou stretch to get a header to a Bosingwa right-wing cross, but the striker's effort looped over the Liverpool crossbar.
The visitors responded through Steven Gerrard and his long-range strike was tipped over the bar by Cech.
Liverpool's centre-back pairing of Carragher and Daniel Agger then saw off several Chelsea attacks, by heading out byline crosses from Bosingwa and Cole.
Deco, on 36 minutes, saw a left-footer flash just wide of Jose Reina's goal as the Portugal international tried a direct route to Liverpool's goal.
The second half started much the same as the first, with Liverpool dominating play and Chelsea lacklustre in attack.
Chelsea boss Luiz Felipe Scolari introduced super sub Juliano Belletti and striker Franco Di Santo on 58 minutes, for Kalou and Florent Malouda.
Liverpool's Rafael Benitez countered this by replacing Robbie Keane with Ryan Babel two minutes later.
Liverpool should have doubled their lead on 61 minutes when a blistering right-footed free-kick by Alonso from 30 yards left Cech rooted to his spot, as the ball crashed against his left upright before being cleared for a corner.
Chelsea missed a sitter to equaliser on 72 minutes when Ashley Cole scuffed a half-volley from a Di Santo flick-on, from just inside the Liverpool area.
Deco took one touch too many seconds later when free on goal, his shot again deflected away by the impressive Carragher.
As the game opened up Liverpool attacked next with Babel firing just wide from 20 yards out.
And with Chelsea reduced to long-range efforts that were way off-mark, Liverpool ran out deserved winners.