Wolves forward Traore struck twice in the final 10 minutes to condemn City to their first home league defeat since they lost to Crystal Palace.
Adama Traore's late double stunned Manchester City as the champions suffered a shock 2-0 defeat at home to Wolverhampton Wanderers on Sunday that left them eight points behind Premier League leaders, Liverpool.
Wolves forward Traore struck twice in the final 10 minutes to condemn City to their first home league defeat since they lost to Crystal Palace on Dec. 22.
Yet it was City's second defeat in their last four league games following the 3-2 loss at Norwich City last month and it will increase Liverpool's belief that they can win their first league title in 30 years.
With Juergen Klopp's side having won all eight of their games so far this season, the Nov. 10 clash with City at Anfield is already looking like a game which could have a major impact on the destiny of the title.
City boss Pep Guardiola said there was little sense in pondering the eight-point gap.
"It is a lot of points. They didn't drop points for many circumstances. It is better not to think that one team is eight points ahead," said Guardiola.
"Today was the day we created less than (in other games), even against Norwich we created a lot. We faced many teams with deep defending systems and more or less we found a way to do it but today we had a problem," he said.
The win was a massive boost for Wolves, who have endured a tricky start to the season due to their early commitments in the Europa League. It was just their second victory of the campaign and their first on the road.
"I'm very very proud, it was a very good performance and more than that, it was the work. The players run and run, they ran like crazy," said Wolves boss Nuno Espirito Santo.
City looked shaky at the back throughout the game with Wolves having three good chances to open the scoring in the first half after waltzing through the makeshift central defensive pairing of Nicolas Otamendi and Fernandinho.
As early as the fifth minute, City's defence was ripped wide-open with Patrick Cutrone bursting through on goal before shooting meekly wide.
Then Riyad Mahrez gave the ball away to allow Raul Jimenez to break free, but the Mexican's shot was blocked by Fernandinho and Cutrone's follow-up struck the Brazilian's head.
Argentine Otamendi was at fault in the 22nd minute, his sloppy pass allowing Jimenez to burst clear again, but this time it was City's Brazilian keeper Ederson who saved their blushes, rushing out to foil the Wolves striker.
Guardiola will be relieved that John Stones is due to return from injury after the international break and on current form it may well be Otamendi rather than converted midfielder Fernandinho who makes way for him.
Yet Guardiola's side also lacked their usual sharpness in attack — they had only two shots on target in the entire match — and the nearest they came to scoring was a 67th-minute free kick from David Silva, which struck the bar.
As so often, City had plenty of possession, but unusually they could not make the most of it, crossing poorly into the box and showing little of the crisp-passing that so often characterises their play.
The decisive blow came when Joao Cancelo lost the ball and Jimenez broke from deep in his own half, skipped past Otamendi and found Traore who kept his cool to beat Ederson.
The 23-year-old Spaniard then added the second, deep in stoppage time, after Jimenez found him again through the exposed City defence.
Liverpool never had an eight-point lead last season, without a game in hand, and while the Autumn leaves have yet to fully fall, Guardiola knows his side can ill-afford to allow the gap to grow.
"The distance is big. I know that. Liverpool is not dropping points. But we are in October, still a lot of games and competitions," said the Spaniard.