City, who took the lead when Sergio Aguero headed home from an offside position for his 100th Premier League goal after 14 minutes, were largely stifled by a Newcastle side who levelled through Vurnon Anita after 31 minutes.
City stayed third in the Premier League on 61 points, but the result opened the door in the battle for a top-four finish to their rivals Manchester United who are fifth, five points adrift with a game in hand. Arsenal are fourth on 60 points.
Rafa Benitez's side, who were denied a late winner when Joe Hart saved brilliantly from Georginio Wijnaldum, stay second-from-bottom on 29 points, but maintain some precious momentum after their weekend victory over Swansea City.
With four games of their season remaining, they are a point adrift of local rivals Sunderland and two behind Norwich City, who are outside the relegation zone in 17th.
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City had enjoyed an iron grip on this fixture having won 12 straight Premier League games against Newcastle, while Aguero had plundered 10 goals in his eight appearances against the Magpies.
It was little surprise, therefore, when the visitors took the lead after 15 minutes, with City's Argentine striker heading them in front from Aleksandar Kolarov's free kick, even if the goal should not have stood.
Replays showed that Aguero was clearly offside when Kolarov's set-piece was whipped into the box, but the linesman kept his flag down and the City marksman wheeled away in celebration.
It was Aguero's 100th Premier goal in his 147th appearance, making him the second quickest player to get to the milestone, behind only former England striker Alan Shearer, who reached his century in 124 matches.
Newcastle had been perhaps the better side until that point though and were deservedly level when Anita, playing at right back, managed to sneak his shot in off the far post.
City never managed to get on top of their opponents, who seemed rejuvenated after their weekend victory and were fuelled by a raucous home crowd that spent much of the second half chanting the name of manager Benitez.
The visitors had a great chance to take the lead again when Aguero fired tamely straight at Newcastle keeper Karl Darlow, but it was the hosts who had the best opportunity of the second half when Wijnaldum's effort was parried by Hart's out-stretched arm.
(Reporting by Toby Davis; editing by Alan Baldwin)
