Pep Guardiola hailed Manchester City's second half power surge as the champions knocked Arsenal off the top of the Premier League with a crucial 3-1 win on Wednesday.

Guardiola's side showed they are not ready to surrender the title with a ruthless display of finishing that lifted them above Arsenal on goal difference.

Kevin De Bruyne put City ahead in the first half at the Emirates Stadium and, although Bukayo Saka equalised with a controversial penalty, Jack Grealish landed the vital blow in the second half when he restored the visitors' lead.

Erling Haaland's 26th goal in 22 league appearances for City killed off Arsenal in the closing stages.

In the most eagerly anticipated Premier League clash this season, City seized the momentum in the title race.

Although Arsenal have a game in hand that could tip the balance back in their favour, City headed home with renewed belief they can win a fifth title in six seasons.

"In the first half, they were much better than us. My tactics were horrible. Second half, we were much, much better," Guardiola said.

"At halftime, we said we were not playing, just defending because they were so good, but we should be more active and the second half was excellent."

Having trailed Arsenal by eight points a month ago, Guardiola's men have won four of their last five league games, while Arsenal have stumbled.

City's title defence is taking place under a dark cloud after the Premier League last week charged the club with more than 100 breaches of its financial rules between 2009 and 2018.

But the race could yet reach a memorable climax, with City due to host Arsenal on April 26 in what is shaping up to be a do-or-die showdown for both teams.

"OK, now we are top of the league, but Arsenal have one game in hand. Winning or losing, you have a lot of games to play, but of course coming here and winning against that team is good," Guardiola said.

Bidding for their first Premier League title since 2003-04, Arsenal were unable to subdue City's battle-hardened stars.

Mikel Arteta's team have failed to win their last four games in all competitions, losing to City in the FA Cup before a surprise defeat at Everton and Saturday's draw against Brentford.

"It's exceptionally difficult to play at the level City require you to play at. If you give three goals away, if you miss the big chances we did, the margin for error is virtually zero," Arteta said.

"We did a lot of simple things wrong. It's impossible against them. We had an opportunity today and we just gave them the game. It was decided in the two boxes."

CITY TURN SCREW

City took the lead in the 24th minute when Grealish harassed Takehiro Tomiyasu into a miscued backpass.

De Bruyne pounced on the mistake with a perfectly-weighted chip from the edge of the area that floated over out-of-position keeper Aaron Ramsdale into the net.

Arsenal drew level in debatable fashion three minutes before halftime.

As Eddie Nketiah flicked a shot goalwards from a tight angle, Ederson raced off his line and collided with the Arsenal striker just before the ball was cleared off the line by Nathan Ake.

Ederson appeared to be trying to pull out of the challenge but Anthony Taylor awarded a penalty despite City's furious protests and Saka stepped up to send Ederson the wrong way with a nerveless strike.

In the midst of a frantic clash, it was City who kept their heads and gradually turned the screw.

Gabriel's foul on Haaland was ruled a penalty but the Norway star was just offside when he received Kyle Walker's pass and the spot-kick decision was overturned.

Yet City's pressure paid off in the 72nd minute as a sweeping move cut through the Arsenal defence.

Gabriel conceded possession too easily and Silva, Haaland and Ilkay Gundogan exchanged passes before Grealish applied the finishing touch, driving a deflected strike past Ramsdale to send Guardiola into a jubilant, fist-pumping jig on the touchline.

Haaland sealed the points in the 82nd minute, drilling into the far corner from De Bruyne's cross. (AFP)