The Reds stormed back from a goal behind to chalk up a ninth successive Premier League victory which takes them nine points clear at the top of the table after Tottenham Hotspur were beaten at home by Wolverhampton Wanderers earlier in the day.
Arsenal took the lead after only 11 minutes through Ainsley Maitland-Niles, but from then on it was all about Liverpool and within five minutes they had turned things around courtesy of a quickfire brace from Roberto Firmino.
Sadio Mane and Mohamed Salah got in on the act before half time to leave Liverpool in control, and Firmino completed his hat-trick after the break as Jurgen Klopp's side brought a memorable 2018 to a close in style.
For Arsenal it was another embarrassing defeat away to a top-six rival as they were swept aside by the rampant Reds, leaving them still two points adrift of fourth-placed Chelsea in the race for Champions League football.
Liverpool started the match brightly and could have broken the deadlock on a couple of occasions in the opening exchanges, with Andrew Robertson flashing a wicked cross into the box and Firmino seeing a low strike hit Salah and zip past the near post.
Arsenal struggled to live with the pace during the opening 10 minutes, but a misplaced pass from Fabinho gifted them a foothold in the game as Alex Iwobi proceeded to draw a low save from Alisson Becker and the fit-again Shkodran Mustafi almost beat the Liverpool keeper to the resulting corner.
It was another mistake which allowed Arsenal to take the lead moments later when Dejan Lovren's pass forward was cut out, and Iwobi then exchanged passes down the left flank before whipping a brilliant ball into the box which Maitland-Niles tapped home at the back post.
It was only the third goal Liverpool had conceded at Anfield this season and the first time they had fallen behind in a home league game all year, but they trailed for less than three minutes as Klopp's side roared back in devastating fashion.
The hosts were given a helping hand by some shambolic Arsenal defending, though, and Firmino's first goal saw Stephan Lichtsteiner play the ball against Mustafi, which sent it bouncing past Bernd Leno and left the Brazilian with a simple finish from close range.
It took just less than two minutes for a second to arrive as Firmino - who was without a goal in 11 home league games prior to today - scored two in 90 seconds, and this time it was all down to his own sparkling footwork as he danced past two defenders before slotting his finish past Leno.
Suddenly Liverpool looked rampant and Mane drew another save from Leno before adding a third goal for the hosts shortly after the half-hour mark.
Robertson's raking diagonal ball forward beat the entire Arsenal defence, allowing Salah to cushion a volley into the path of Mane for a simple finish.
Maitland-Niles and Aaron Ramsey both fired over in quick succession towards the end of the first half, but Liverpool effectively killed the game off as a contest right on the stroke of half time when they made it four from the penalty spot.
Salah darted past Sokratis Papastathopoulos before being bundled over inside the area by a clumsy challenge from behind, and the Egyptian dusted himself off to fire the spot kick straight down the middle - a goal which saw him draw level with Pierre-Emerick Aubameyang and Harry Kane in the Golden Boot race.
The hosts showed no signs of letting up in the early stages of the second half either, and Salah should have done better in the opening exchanges after being found by Xherdan Shaqiri's clever pass into the box.
Arsenal did begin to settle into the second half and could have pulled a goal back when Ramsey was slipped through by Granit Xhaka, only to see his chipped finish - which was heading wide - somehow poked over the crossbar from point-blank range by an offside Aubameyang.
The Gunners - who were the last team to take points off Liverpool in the league at the beginning of November - struggled to get close to their hosts for the most part, though, and Fabinho latched on to a lovely flick from Salah before forcing another save from Leno shortly after the hour mark.
Arsenal were made to pay for another naive piece of defending moments later when Sead Kolasinac barged into Lovren to concede their second penalty of the match, and this time Firmino was given the duties to complete his hat-trick by sending Leno the wrong way.
Shaqiri, Jordan Henderson and Salah all had sights of goals as Liverpool went in search of a sixth, but by that stage the hosts were in cruise control and already looking ahead to Thursday's showdown with Manchester City at the Etihad Stadium.
Today's result leaves the Reds 10 points clear of the champions, although Pep Guardiola's side have the chance to close that gap down to seven - and climb back into second place - when they take on Southampton on Sunday.
LIVERPOOL (4-2-3-1): Alisson; Alexander-Arnold, Lovren, Van Dijk, Robertson (Clyne 83'); Wijnaldum (Lallana 78'), Fabinho; Shaqiri, Firmino, Mane (Henderson 62'); Salah
ARSENAL (4-2-3-1): Leno; Lichtsteiner, Mustafi (Koscielny 46'), Sokratis, Kolasinac (Guendouzi 80'); Torreira, Xhaka; Maitland-Niles, Ramsey, Iwobi; Aubameyang (Lacazette 71')