The meeting of the last two champions was a complete mismatch as Sergio Aguero scored a hat trick for the second successive weekend.
City regained top spot from Liverpool in its title defense as 2017 champion Chelsea ended the weekend by dropping out of the Champions League places into sixth.
Raheem Sterling scored twice — City’s opener in the fourth minute and the sixth in the 80th — and Ilkay Gundogan also netted.
It was Chelsea’s third consecutive away loss in the league, following a 2-0 collapse at Arsenal and 4-0 humiliation against Bournemouth.
Chelsea had not lost by six goals or more since April 1991 — a year before the inception of the Premier League — when Nottingham Forest beat the west London club 7-0.
Chelsea was un-picked after only four minutes at the Etihad Stadium. With a cleverly taken free kick down the right, Kevin De Bruyne released Bernardo Silva, who cut back for Sterling to strike into the net.
Aguero should have doubled the lead almost immediately but remarkably missed from close range. Silva had weaved through the area to set up a gilt-edged opportunity but the Argentina forward uncharacteristically poked wide.
Manager Pep Guardiola sank to his knees in frustration but he was soon celebrating as Aguero made amends in sensational fashion. The striker played a one-two with Oleksandr Zinchenko outside the area and then unleashed a powerful shot that flew in from 25 yards (meters) in the 13th minute.
“Out of nothing,” Sterling said, “he can put the ball in the top corner and players like this, you have got to cherish.”
Aguero’s second was gifted to him six minutes later. David Luiz headed clear but Ross Barkley inexplicably headed back into the danger area. Aguero was lurking in the six-yard box and punished the former Everton midfielder with a sharp turn and shot.
Chelsea hardly had time to take stock before the visitors conceded again, with Gundogan slotting home in the 25th with a neat shot from the edge after a poor clearance from Antonio Rudiger.
City eased off for the remainder of the first half, and Chelsea striker Gonzalo Higuain even managed to test goalkeeper Ederson with a sharp volley.
Although Aguero headed against the crossbar early in the second half, he only had to wait until the 56th to seal his 15th City hat trick — and a record-equaling 11th in the Premier League with Alan Shearer. Sterling was brought down in the box by Cesar Azpilicueta and Aguero stepped up and sent Kepa Arrizabalaga the wrong way from the spot.
There seemed to be no let-up from City with De Bruyne firing a free kick at Arrizabalaga and Aguero shooting into the side-netting.
Sterling wrapped up a brilliant afternoon’s work after substitute David Silva opened up the Chelsea defense yet again and Zinchenko picked out the winger to tap in from close range.