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Manchester City suffered their second successive defeat as Ricardo Pereira's spectacular late strike gave Leicester a win and dropped Pep Guardiola's side down to third.
Ricardo blasted in a winner from the edge of the penalty area in the 81st minute after Leroy Sane's weak header to leave Manchester City seven points behind leaders Liverpool and take them below Tottenham as well.
The visitors had taken a 14th-minute lead when they took advantage of poor defending from the home side as Sergio Aguero released Bernardo Silva and he calmly slotted past Kasper Schmeichel.
But their lead only lasted five minutes as Marc Albrighton headed in from Jamie Vardy's cross, before Ricardo's stunning winner for a Leicester side who had also won 1-0 at Chelsea on Saturday.
The away side ended the game with 10 men as Fabian Delph was shown a red card when he slid in on Ricardo and caught him on the knee.
Manchester City only lost twice in all of 2017-18 as they became the champions, but this loss was their second in five days after a shock 3-2 home defeat by Crystal Palace on Saturday.
It has been a miserable festive period so far for Guardiola's side, who have now twice surprisingly been beaten after scoring the game's opening goal.
There appeared to be no danger when Aguero linked up with Bernardo Silva, who gave City the lead early on. But, just like against Palace, Guardiola's side let their opponents back into the game within minutes of going in front.
Bernardo Silva's goal was his fifth in the Premier League for Manchester City this season and his seventh in all competitions
Their lead over Palace only lasted six minutes on Saturday, and it only took Leicester five minutes to peg Guardiola's team back at the King Power Stadium.
Poor defending, and Vardy being given space to cross from the left side of the penalty area, saw Albrighton get himself clear of marker Delph at the back post to head past Ederson.
City had chances to retake the lead with Aguero surprisingly scooping the ball over from six yards out from Leroy Sane's pull-back.
Kevin de Bruyne, making his first Premier League start of the season after knee injuries, did well to create space for a low cross, but Kasper Schmeichel did well to hold on to the ball as Aguero waited to pounce.
The away side had the majority of possession in the second half, but Sane's poor header late on was punished with a spectacular finish from Ricardo.
City are aiming to win the Premier League for a fourth time in eight seasons and have 44 points, with Liverpool, who they play at home on 3 January, on 51 points after their 4-0 home win over Newcastle.
Mauricio Pochettino's Tottenham have also moved above City, thanks to their 5-0 home success over Bournemouth.
A run of only one win in eight matches in all competitions had led to speculation concerning the future of Foxes manager Claude Puel.
However, his side have responded by winning 1-0 at Chelsea on Saturday and now became only the third side to beat Manchester City in the league this season.
Despite conceding so early on, Leicester's players quickly got themselves back into it and ended the first half strongly with Manchester City goalkeeper Ederson saving efforts from Vardy, James Maddison and Hamza Choudhury.
Marc Albrighton's goal meant Manchester City have conceded with the first shot they have faced in three of their past four Premier League games
In the second half, Leicester had to defend deep, but Puel's side produced an organised, disciplined performance to restrict the away team to only four shots on target.
Kasper Schmeichel was a calming figure in the Leicester goal and a number of players, including Harry Maguire and Wes Morgan, made crucial blocks to frustrate Guardiola's men.
Those saves and desperate defending proved crucial before Ricardo's goal took Leicester back up to seventh, only four points behind sixth-placed Manchester United.
As well as scoring the winning goal, Ricardo Pereira made the most tackles (six) from any player and made three clearances and one interception
Leicester manager Claude Puel told BBC Sport: "A good Boxing Day. We know when you play Chelsea and City it's difficult to have the ball but you must have this mentality to defend together and try to use good recovery and fast passes to break.
"We deserved this result. We had more chances than them. We changed the system to get a better balance in the team and it is a fantastic result for this team.
"Some players are very tired. It was important to put the same team on the pitch. We didn't play well against Crystal Palace but we have had two fantastic games."
Manchester City manager Pep Guardiola told BBC Sport: "It was a similar performance to the Crystal Palace game, we started well but conceded a goal the first time they arrived in our box. Mentally we are lacking confidence in that situation.
"We have to accept it, we have to realise that we have to work harder and try to get immediately one good result and get our confidence back.
"Of course we are worried [about not keeping clean sheets], the result is what counts, we lost. In four days we have another one. We are together, we will work harder and we will come back with some good results. The season is very long and we have lots to fight for.
"It was another fantastic goal against us. There are games when your opponents have clear chances and don't score and games when they score goals like this."
Leicester are at home to Cardiff City on Saturday, 29 December and they play at Everton on Tuesday, 1 January.
For Manchester City, they will be trying to get back to winning ways at Southampton on 30 December, before a home game against league leaders Liverpool on 3 January.
