The Merseysiders, who had Senegal international Salif Diao sent off after 66 minutes for two bookable offences, were hardly in the hunt.
They were floored by Laurent Robert's 13th minute knock-out blow.
It means Liverpool have now managed just four points from the last 30 while Newcastle recorded their tenth home win of the season to start the New Year in style.
On a mud bath of a pitch - which will be dug up and replaced - Newcastle dictated from the start as they frustrated Liverpool, who picked up two early cautions.
England international Steven Gerrard was the first for a reckless challenge on Olivier Bernard to soon be followed by Diao, for a ruthless tackle from behind on Craig Bellamy.
Looking for a ninth successive Premiership home win, injury-ravaged Newcastle got the break they wanted in what was an unlucky 13th minute for Liverpool.
John Arne Riise gave away a free-kick just outside the box on the right when he took out Alan Shearer in full stride.
Unpredictable French winger Laurent Robert drove the ball goalwards and it struck Milan Baros in the wall to beat Chris Kirkland at his near post even though the keeper managed to get a hand to the drive.
Kirkland was then called into action soon afterwards when Clarence Acuna worked a clever one-two with Craig Bellamy and the keeper managed to turn away the Chilean international's effort on what was a rare appearance.
It was not until the 32nd minute that Liverpool managed their first shot on target with Shay Given doing well to keep out Steven Gerrard's 25-yard effort.
Shearer went close with a free-kick just before the interval and tested Kirkland on two other occasions in the second half.
Baros had a golden chance to level after 50 minutes but completely mis-kicked when attempting to reach a header from Diouf.
When Diao was sent off it was always going to be an uphill battle for Liverpool, who were fortunate not to see Diouf follow him to the dressing room for a reckless tackle that should have earned him a second yellow card.