The Belgium international screwed his first-half spot-kick wide of the post after VAR ruled Joe Gomez had used his arm in attempting to stop De Bruyne’s cross from the right.
City gradually came back into the game thanks to Gabriel Jesus’ clever finish after a slick move.
League leaders Leicester
Had Liverpool won Jurgen Klopp’s team would have returned to the top of the Premier League table, but the draw left the champion in third, a point behind leaders Leicester City, who beat Wolves 1-0 earlier on Sunday courtesy of a Jamie Vardy penalty.
The Premier League’s top scorer — Vardy has scored nine goals this season — then missed another penalty.
After the international break, Liverpool faces Leicester at Anfield on November 21.
Manchester City is 11th in the table, six points behind Leicester, but with a game in hand.
Tottenham Hotspur is second — Jose Mourinho’s side has a better goal difference than Liverpool — thanks to a 1-0 win over West Bromwich Albion.
The award of City’s penalty was the latest controversial handball decision in a Premier League season that has provoked an intense debate about the rule’s application.
Leicester’s first penalty also came from another handball, referee Anthony Taylor ruling that Dennis Praet’s cross had struck Max Kilman on the hand.
“They [referees] are going to the letter of the law. For players it is harsh, I feel for defenders running back for the pace of that Kevin de Bruyne cross, it is hard for him [Joe Gomez] to get out of the way.
“Everyone is finding it difficult to know where to put their arms> Hopefully the refs can look at it and it shouldn’t be given in both games.”