The Blues twice took the lead through Leroy Sane and Sergio Aguero, but goals from Theo Walcott and Shkodran Mustafi pegged Pep Guardiola’s men back.
The result leaves City in fourth place – a point behind Liverpool but with a game in hand – ahead of Wednesday’s trip to Chelsea.
What happened?
City will be left wondering what might have been after a frenetic game finished all square in north London.
Guardiola’s men had more chances and possession, with Sane always a threat down the left and David Silva and Kevin De Bruyne constantly probing the Gunners defence.
The tone and tempo was set from the very start as City flew at Arsenal.
Aguero and Raheem Sterling had already had half-chances before the irrepressible Sane struck.
Ever since he scored against Arsenal at the Etihad back in December, the Germany winger has been in scintillating form. Here he latched onto Kevin De Bruyne’s brilliant volleyed throughball, and showed composure beyond his 21 years to glide around David Ospina and slot home.
That’s eight goals in 15 appearances for Sane, and 11 assists for De Bruyne.
City’s early dominance – De Bruyne hit the post with one curling effort - subsided and after a series of Gunners free-kicks eventually the home side’s pressure told. Walcott sprung the offside trap and somehow evaded Gael Clichy’s challenge to score.
That prompted an instant City response. Silva won back possession and laid a beautifully timed pass into the path of Aguero. There was plenty to do for the Argentinian but he did it, smashing a pinpoint finish just inside the far post for his 26th of the season to send City in ahead at half time.
City brought on Yaya Toure for Sterling at the break and he soon began knitting the play together from central midfield.
One patiently worked move created a chance for Aguero but he could only slam his header wide.
Shortly after Arsenal were level when Mustafi rose highest from a corner to head past Caballero.
Again City dug deep, with Ospina parrying a lashed Fernandinho volley, before Aguero saw a header saved as Guardiola’s men reasserted control.
Late penalty appeals against Arsenal’s Nacho Monreal were waved away as City pushed for the winner, but it was not to be.
Matchday App man of the match – Leroy Sane
Another goal for the electric winger who goes from strength-to-strength in a City shirt.
What it means?
City stay in fourth place, a point behind Liverpool but having played a game less. Tottenham are four points ahead of the Blues, with leaders Chelsea 11 ahead. United trail City by five points but have a game in hand, while Arsenal are seven behind, also with a game in hand.
Team notes
Jesus Navas played at right back, with Raheem Sterling ahead of him on the wing. De Bruyne occupied a deeper position than usual in central midfield. When Toure came on at half time for Sterling, De Bruyne shifted to the right. Vincent Kompany made his first appearance in the squad since the Bournemouth game on 13 February. Bacary Sagna missed out through injury.
What’s next?
City face a quick turn around ahead of Wednesday evening’s clash at Chelsea (8pm), before the home game against Hull next Saturday (3pm).