Ademola Lookman scored the only goal as Leicester beat Liverpool to leave the Reds six points off the top of the Premier League table.
Liverpool's biggest chances came in the first half when Mohamed Salah had a 15th-minute penalty saved by Kasper Schmeichel and headed the rebound off the bar.
Sadio Mane then missed a couple of opportunities for Jurgen Klopp's side before they were made to pay by the hosts in the 59th minute.
Former Everton forward Lookman, with only his fourth touch after coming on, took Kiernan Dewsbury-Hall's pass in his stride, beat Joel Matip and rifled a shot past Alisson - Leicester's only shot on target.
Leicester, missing several first-team players, hung on despite relentless late Liverpool pressure - just six days after blowing a 3-1 lead to lose on penalties against the same opposition in the Carabao Cup quarter-finals.
With only their second defeat of the season, Liverpool are now six points behind leaders Manchester City, while Leicester - who have won just two games out of seven - move up to ninth.
The Reds could also end 2021 in third place and nine points off top spot if Pep Guardiola's City beat Brentford, and Chelsea at least draw with Brighton, on Wednesday.
Huge blow for Reds' title hopes?
Goals seemed to be practically guaranteed in this one. Liverpool had scored a club record 50 in their opening 18 league games.
Leicester had netted 12 and let in another dozen in their last four games, including the 3-3 cup draw at Anfield and a 6-3 defeat by Manchester City on Boxing Day.
Injury problems for the Foxes meant Wilfred Ndidi returned from a hamstring problem to start at centre-back.
He fouled Salah for the penalty which everybody expected to produce the opener.
But Schmeichel guessed right as the Reds failed from the spot for the first time in the Premier League in more than four years.
Salah should also have netted the rebound too with Schmeichel on the ground, but his looping header in front of an empty net hit the crossbar.
That means he ends 2021 on 24 Premier League goals and 11 assists.
The Reds had a host of half-chances, with Jordan Henderson half-volleying off target on three occasions in the opening period.
Schmeichel then did well to keep out Alex Oxlade-Chamberlain's overhit cross and Salah's first-time effort - with Mane missing a couple of good chances too.
Vardy caused the visitors problems - but substitute Lookman's goal three minutes after coming on was their only shot on target.
In their thrilling cup clash, Liverpool came from two goals down to break the Foxes' hearts with a 95th-minute equaliser, but this time the hosts held their nerve.
Liverpool kept pushing until the end with Diogo Jota heading wide and Schmeichel saving a Virgil van Dijk shot with his feet.
This was their first league game without scoring in 29 outings and makes Sunday's trip to Chelsea - the last before Salah, Mane and Naby Keita go to the Africa Cup of Nations - almost a must-win meeting.
Player of the match
SchmeichelKasper Schmeichel
Leicester City
Squad number1Player nameSchmeichel
Squad number22Player nameDewsbury-Hall
Squad number37Player nameLookman
Squad number33Player nameThomas
Squad number25Player nameNdidi
Squad number10Player nameMaddison
Squad number18Player nameAmartey
Squad number27Player nameCastagne
Squad number11Player nameAlbrighton
Squad number8Player nameTielemans
Squad number9Player nameVardy
Squad number14Player nameIheanacho
Squad number42Player nameSoumaré
Squad number20Player nameChoudhury
Line-ups
Leicester
Formation 4-3-1-2
1Schmeichel
27Castagne18Amartey25Ndidi33Thomas
20Choudhury42Soumaré10Maddison
22Dewsbury-Hall
9Vardy14Iheanacho
1Schmeichel27Castagne18Amartey25Ndidi33Thomas20ChoudhurySubstituted forLookmanat 56'minutes42Soumaré10MaddisonSubstituted forAlbrightonat 68'minutes22Dewsbury-Hall9Vardy14IheanachoSubstituted forTielemansat 56'minutesSubstitutes
8Tielemans11Albrighton12Ward17Pérez23Vestergaard37Lookman38Daley-Campbell45Nelson49McAteerLiverpool
Formation 4-3-3
1Alisson
66Alexander-Arnold32Matip4van Dijk21Tsimikas
14Henderson3Fabinho15Oxlade-Chamberlain
11Salah20Jota10Mané
1Alisson66Alexander-Arnold32MatipBooked at 4mins4van Dijk21Tsimikas14HendersonSubstituted forFirminoat 70'minutes3FabinhoSubstituted forMilnerat 64'minutes15Oxlade-ChamberlainSubstituted forKeïtaat 55'minutes11Salah20Jota10ManéSubstitutes
5Konaté7Milner8Keïta9Firmino12Gomez17Jones62Kelleher63Beck76N WilliamsReferee:Michael OliverAttendance:32,230Live Text
Match ends, Leicester City 1, Liverpool 0.
Second Half ends, Leicester City 1, Liverpool 0.
Attempt missed. Joel Matip (Liverpool) header from very close range is too high. Assisted by Trent Alexander-Arnold with a cross following a corner.
Corner, Liverpool. Conceded by Daniel Amartey.
Attempt blocked. Sadio Mané (Liverpool) left footed shot from the centre of the box is blocked. Assisted by Naby Keïta.
James Milner (Liverpool) wins a free kick in the defensive half.
Foul by Ademola Lookman (Leicester City).
Foul by Trent Alexander-Arnold (Liverpool).
Ademola Lookman (Leicester City) wins a free kick in the defensive half.
Corner, Liverpool. Conceded by Timothy Castagne.
Corner, Liverpool. Conceded by Daniel Amartey.
Attempt blocked. Naby Keïta (Liverpool) right footed shot from the centre of the box is blocked. Assisted by Roberto Firmino.
Attempt missed. Sadio Mané (Liverpool) header from the centre of the box misses to the left. Assisted by Konstantinos Tsimikas with a cross following a corner.
Corner, Liverpool. Conceded by Wilfred Ndidi.
Corner, Liverpool. Conceded by Kasper Schmeichel.
Attempt saved. Virgil van Dijk (Liverpool) left footed shot from the left side of the box is saved in the bottom left corner.
Attempt blocked. Joel Matip (Liverpool) header from the centre of the box is blocked. Assisted by James Milner with a cross.
Corner, Liverpool. Conceded by Timothy Castagne.
Foul by Konstantinos Tsimikas (Liverpool).
Youri Tielemans (Leicester City) wins a free kick in the defensive half.
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