Watford profited from Liverpool's calamitous opening at Vicarage Road to continue their remarkable rise with a fourth consecutive Premier League win.
Adam Bogdan dropped a corner with the very first touch of his league debut, allowing Nathan Ake to stab the home side ahead after just three minutes.
Odion Ighalo doubled the lead, firing in off the post from a tight angle.
And the Nigerian sealed a deserved victory with his 12th of the season, nodding in from Valon Behrami's cross.
The Hornets, promoted from the Championship last term, move to within a point of the Champions League places.
Defeat for Jurgen Klopp's Liverpool, who are now without a win in their last three league games, leaves them ninth - four points behind Quique Flores' side in seventh.
With regular goalkeeper Simon Mignolet absent from the squad with a hamstring injury, 28-year-old Bogdan - who had previously only played in the League Cup since his summer arrival - was called in.
Just over two minutes into the match, he bounced Ben Watson's corner at his own feet rather than making what looked like an easy catch. Replays suggested he might have had two hands on the ball when Ake pounced, but nonetheless it was a poor error.
Bogdan said: "I had both hands on the ball but we are talking about a split-second. It's not easy for the referee to see. If I catch the first ball, there is no second one.
"Something went wrong, I have to think about it again. It was a mistake and I will learn from it."
Hungarian Bogdan didn't cover himself in glory when punching a through ball into Lucas' face either though, and his nervousness seemed to spread through the Reds defence.
Martin Skrtel, who came off injured before half-time, was arguably too weak when trying to steer Ighalo away from goal for Watford's second and his fellow centre-back Mamadou Sakho was dangerously ponderous in possession.
Sakho, returning after six weeks out, also fell over under no pressure to allow Ighalo in on goal in the second half, with Bogdan making partial amends via a fine reflex save.
Troy Deeney and Ighalo have created more goalscoring chances for one another than any other pairing this season. They were at it again for Watford's second as a simple Deeney ball over the top put Ighalo through with only Skrtel for company.
The 26-year-old brushed off the Liverpool defender's weak challenge and fired in off the post from a tight angle, before adding his second with a simple header to bring his tally for 2015 to 28 goals - the best return in England's professional leagues.
If Watford were surprised to have gone ahead so early and so comfortably, the rest of their performance showed no sign of it. The Hornets were composed and committed as they outplayed a disappointing Liverpool side.
There was none of the high-intensity, slick interplay that has characterised the best performances of Klopp's time at Anfield so far, and instead it was Watford who claimed a deserved victory.
Liverpool manager Jurgen Klopp: "If you watch the TV, you see Bogdan had the ball under control and both hands were on the ball.
"It should not be allowed but first of all he should not drop the ball. That is the mistake of the referee but the biggest mistake was our reaction.
"It was a deserved win for Watford. Not because of our faults, but more because of the reaction to our faults."
Watford manager Quique Flores: "Of course we want to dream but we want to remain humble. This is our one advantage, because the Premier League is very tough.
"We have a lot of matches and we never underestimate the teams we play. We are completely happy with the performance. It was an amazing victory against an amazing team."
Watford play Chelsea, Tottenham and Manchester City in their next three fixtures over Christmas and New Year, while Liverpool host leaders Leicester on Boxing Day before away games against Sunderland and West Ham.
Full Time Match ends, Watford 3, Liverpool 0.
90:00 +3:14 Full timeFull Time Second Half ends, Watford 3, Liverpool 0.
90:00 +2:45Attempt missed. Jordon Ibe (Liverpool) left footed shot from outside the box misses to the right. Assisted by Alberto Moreno.
90:00 +1:59Corner, Liverpool. Conceded by Ikechi Anya.
90:00 +1:34Philippe Coutinho (Liverpool) wins a free kick in the defensive half.
90:00 +1:34Foul by Nyom (Watford).
89:35Offside, Liverpool. Alberto Moreno tries a through ball, but Christian Benteke is caught offside.
88:06 SubstitutionSubstitution Substitution, Watford. Adlène Guédioura replaces Odion Ighalo.
88:01Delay over. They are ready to continue.
86:39Delay in match Miguel Britos (Watford) because of an injury.
85:54Foul by Jordan Henderson (Liverpool).
85:54Valon Behrami (Watford) wins a free kick in the defensive half.
84:27 Goal scoredGoal! Goal! Watford 3, Liverpool 0. Odion Ighalo (Watford) header from the centre of the box to the centre of the goal. Assisted by Valon Behrami with a cross.
83:07Offside, Liverpool. Philippe Coutinho tries a through ball, but Christian Benteke is caught offside.
81:45Foul by Mamadou Sakho (Liverpool).
81:45Odion Ighalo (Watford) wins a free kick in the attacking half.
79:48Philippe Coutinho (Liverpool) wins a free kick on the left wing.
79:48Foul by Nyom (Watford).
79:18 SubstitutionSubstitution Substitution, Watford. Valon Behrami replaces Almen Abdi.
78:31Attempt missed. Christian Benteke (Liverpool) header from the centre of the box misses to the left. Assisted by Jordan Henderson following a set piece situation.
Booking Miguel Britos (Watford) is shown the yellow card for a bad foul.
77:43Christian Benteke (Liverpool) wins a free kick in the attacking half.
77:43Foul by Miguel Britos (Watford).
76:57Corner, Liverpool. Conceded by Nyom.
76:23Corner, Liverpool. Conceded by Miguel Britos.
76:21Attempt blocked. Jordan Henderson (Liverpool) right footed shot from outside the box is blocked.
75:29Delay over. They are ready to continue.
75:20 SubstitutionSubstitution Substitution, Watford. Ikechi Anya replaces Jurado.
74:56Delay in match Emre Can (Liverpool) because of an injury.
73:49Attempt blocked. Jordon Ibe (Liverpool) right footed shot from the right side of the box is blocked.
73:37 SubstitutionSubstitution Substitution, Liverpool. Christian Benteke replaces Roberto Firmino.
73:23 SubstitutionSubstitution Substitution, Liverpool. Jordon Ibe replaces Adam Lallana.
71:37Corner, Liverpool. Conceded by Heurelho Gomes.
71:35Attempt saved. Emre Can (Liverpool) right footed shot from outside the box is saved in the bottom right corner.
69:55Foul by Lucas Leiva (Liverpool).
69:55Odion Ighalo (Watford) wins a free kick on the left wing.
65:41Corner, Liverpool. Conceded by Heurelho Gomes.
65:38Attempt saved. Jordan Henderson (Liverpool) right footed shot from the right side of the box is saved in the top centre of the goal. Assisted by Philippe Coutinho.
62:46Corner, Watford. Conceded by Adam Bogdan.
62:44Attempt saved. Odion Ighalo (Watford) right footed shot from the centre of the box is saved in the centre of the goal. Assisted by Jurado with a through ball.
60:18Attempt missed. Adam Lallana (Liverpool) header from the centre of the box is close, but misses to the right. Assisted by Jordan Henderson.
59:41Divock Origi (Liverpool) wins a free kick in the defensive half.
59:41Foul by Nyom (Watford).
58:31Corner, Watford. Conceded by Adam Lallana.
56:46Offside, Liverpool. Divock Origi tries a through ball, but Jordan Henderson is caught offside.
55:34Corner, Watford. Conceded by Jordan Henderson.
53:07Offside, Liverpool. Adam Bogdan tries a through ball, but Roberto Firmino is caught offside.
50:23Offside, Liverpool. Philippe Coutinho tries a through ball, but Roberto Firmino is caught offside.
49:19Foul by Adam Lallana (Liverpool).
49:19Nyom (Watford) wins a free kick in the defensive half.
48:33Offside, Liverpool. Lucas Leiva tries a through ball, but Divock Origi is caught offside.
47:15Attempt saved. Divock Origi (Liverpool) right footed shot from the right side of the box is saved in the bottom right corner. Assisted by Emre Can.
46:28Attempt missed. Alberto Moreno (Liverpool) left footed shot from a difficult angle on the left is close, but misses to the left.
45:47Attempt blocked. Adam Lallana (Liverpool) right footed shot from the centre of the box is blocked. Assisted by Divock Origi with a headed pass.
45:30Philippe Coutinho (Liverpool) wins a free kick in the attacking half.
45:30Foul by Etienne Capoue (Watford).
45:00Second Half begins Watford 2, Liverpool 0.
45:00 +3:07 Half timeHalf Time First Half ends, Watford 2, Liverpool 0.
45:00 +2:45Corner, Liverpool. Conceded by Craig Cathcart.
44:21Corner, Watford. Conceded by Alberto Moreno.
43:27Offside, Liverpool. Philippe Coutinho tries a through ball, but Jordan Henderson is caught offside.
42:41Offside, Watford. Craig Cathcart tries a through ball, but Troy Deeney is caught offside.
41:59Offside, Liverpool. Roberto Firmino tries a through ball, but Philippe Coutinho is caught offside.
40:50Delay over. They are ready to continue.
40:45 SubstitutionSubstitution Substitution, Liverpool. Divock Origi replaces Martin Skrtel because of an injury.
39:14Delay in match Martin Skrtel (Liverpool) because of an injury.
38:47Corner, Watford. Conceded by Martin Skrtel.
38:13Offside, Liverpool. Martin Skrtel tries a through ball, but Philippe Coutinho is caught offside.
36:43Foul by Philippe Coutinho (Liverpool).
36:43Ben Watson (Watford) wins a free kick in the defensive half.
32:59Corner, Watford. Conceded by Adam Bogdan.
32:57Attempt saved. Jurado (Watford) right footed shot from the right side of the box is saved in the bottom right corner. Assisted by Almen Abdi with a cross.
32:19Attempt blocked. Etienne Capoue (Watford) right footed shot from outside the box is blocked. Assisted by Almen Abdi.
31:02Delay over. They are ready to continue.
28:58Delay in match Martin Skrtel (Liverpool) because of an injury.
27:40Corner, Liverpool. Conceded by Nyom.
21:54Foul by Alberto Moreno (Liverpool).
21:54Nyom (Watford) wins a free kick in the defensive half.
20:23Foul by Emre Can (Liverpool).
20:23Etienne Capoue (Watford) wins a free kick in the defensive half.
19:30Foul by Martin Skrtel (Liverpool).
19:30Troy Deeney (Watford) wins a free kick in the defensive half.
18:25Emre Can (Liverpool) wins a free kick in the defensive half.
18:25Foul by Almen Abdi (Watford).
14:51 Goal scoredGoal! Goal! Watford 2, Liverpool 0. Odion Ighalo (Watford) right footed shot from the right side of the box to the bottom left corner.
13:26Foul by Emre Can (Liverpool).
13:26Etienne Capoue (Watford) wins a free kick in the defensive half.
12:28Offside, Liverpool. Jordan Henderson tries a through ball, but Roberto Firmino is caught offside.
10:20Attempt saved. Philippe Coutinho (Liverpool) right footed shot from outside the box is saved in the centre of the goal. Assisted by Jordan Henderson.
9:20Corner, Liverpool. Conceded by Etienne Capoue.
8:56Corner, Liverpool. Conceded by Craig Cathcart.
8:03Attempt blocked. Nathaniel Clyne (Liverpool) right footed shot from outside the box is blocked.
2:05 Goal scoredGoal! Goal! Watford 1, Liverpool 0. Nathan Aké (Watford) left footed shot from very close range to the bottom left corner following a corner.
1:33Corner, Watford. Conceded by Nathaniel Clyne.
0:00First Half begins.
0:00Lineups are announced and players are warming up.
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