Reuters reports the north Londoners were heading for a first league win at Liverpool since 2012, an eighth successive league win and a massive three points in their quest to win the league as they powered into a 2-0 lead.
But Liverpool woke from their slumber and with the crowd cranking up the volume, they surged back and Roberto Firmino headed an 87th-minute equaliser that sparked delirium in the stands and would have been heartily cheered by fans of Manchester City too.
It could have got even worse for Mikel Arteta's side too as Mo Salah, who scored Liverpool's first goal and then missed a second-half penalty, blazed a late chance over and was then denied brilliantly by Arsenal goalkeeper Aaron Ramsdale.
Ramsdale then made an even more miraculous save from Ibrahima Konate in a breathless period of stoppage time.
When the dust settled on a rambunctious contest that had everything, Arsenal, bidding for a first title since 2004, lead Manchester City by six points but the reigning champions have a game in hand and also face Arsenal at home later this month.
Arsenal have 73 points from 30 games, while Liverpool are eighth with 44 points.
A game which began in sombre mood as the 34th anniversary of the Hillsborough disaster was marked by a moment of silence, exploded into life and even included an alleged elbow by an assistant referee on Liverpool's Andy Robertson.
"Wow! Very intense game. The game was under control but after that we concede a really sloppy goal and the game shifted momentum," Arsenal manager Arteta said.
"It became a very transitional game, very chaotic. Liverpool could score three or four. It is true we could have scored two or three so maybe at the end the score is fair."
Arsenal had taken an early lead when forward Gabriel Martinelli wriggled through in the eighth minute after a flowing move involving Bukayo Saka and managed to squeeze in a shot under pressure past Liverpool keeper Alisson.
With Liverpool in disarray, Martinelli then crossed for Gabriel Jesus to head home in the 28th minute.
Arsenal were cruising but everything changed when Gunners midfielder Granit Xhaka and Liverpool's Trent Alexander-Arnold got involved in an ugly scuffle.
Suddenly the decibel level went up and Salah pulled one back in the 42nd minute when Diogo Jota ran on to a pass from Curtis Jones and sent in a cross that Jordan Henderson stretched to poke forward and the Egypt striker finished off.
"When the Anfield crowd is sleeping, don't wake them up. Leave them be. Xhaka woke the crowd up," former Manchester United defender and Sky Sports analyst Gary Neville said.
Liverpool took charge after the break and were awarded a penalty in the 58th minute after Rob Holding fouled Jota. But Salah missed his second successive penalty as he fired wide.
His blushes were partially spared though as Firmino, on as a substitute, rose to head in Alexander-Arnold's cross.
Asked what the result did for their title hopes, Arteta said: "We move on. Convince them to keep playing like we did in the first 30 minutes."
Crystal Palace crush Leeds
Earlier, Crystal Palace came back from a goal down to win a second successive Premier League game under manager Roy Hodgson with a commanding 5-1 victory at Leeds United.
Despite the absence of injured top scorer Wilfried Zaha, four second-half goals moved Palace up to 12th in the standings while Leeds are 16th -- two points above the relegation zone.
Leeds dominated the early stages and tested goalkeeper Sam Johnstone several times before Patrick Bamford broke the deadlock after 21 minutes with a well-directed header from a corner for his 50th goal for the club.
Johnstone kept Palace in the game with a string of saves and the visitors made them pay, equalising on the stroke of halftime from a set-piece when Marc Guehi scored from close range.
Palace came out firing in the second half and scored two goals in two minutes as Jordan Ayew gave them the lead with a header before Eberechi Eze made it 3-1, 21-year-old Michael Olise creating both goals.
Palace silenced a stunned Elland Road crowd with a devastating counter-attack and Odsonne Edouard fired low into the bottom corner for his first league goal since October as Olise grabbed his third assist in 16 minutes.
Ayew scored his second when a blocked shot fell kindly to the unmarked forward who fired the ball home with no one but the keeper to beat as Palace moved six points clear of the drop zone.
Photo: PAUL ELLIS