City claimed the shootout 5-4. Giorgino Wijnadlum missed Liverpool's second penalty.
It was a disappointing denouement for Jurgen Klopp's European champions who appeared more likely to find a winner within the 90 minutes after Joel Matip had cancelled out Raheem Sterling's first-half opener for City
City goalkeeper Claudio Bravo rescued his side on two occasions towards the end. First he rushed out quickly to block Mo Salah's shot and then he got done sharply at his near post to parry away Xherdan Shaqiri's drive.
When Salah did finally beat him, Kyle Walker acrobatically scissor-kicked the ball off the goal line.
Following an unprecedented clean sweep of all three English trophies in 2018-2019, City have laid down a marker for the new season with Pep Guardiola's seventh title since taking the helm at the Etihad in July 2016.