Liverpool were simply overwhelmed as their hopes of a top-four finish suffered a severe setback.
Vardy gave Leicester the lead in the 28th minute with his first league goal since December.
Danny Drinkwater made it 2-0 with a stunning volley six minutes before halftime and Vardy headed rejuvenated Leicester's third on the hour as Liverpool crumbled.
Liverpool enjoyed plenty of possession and Philippe Coutinho gave them a lifeline after 69 minutes but Leicester held on for a crucial victory which took them up three places to 15th.
"It feels good, we need to enjoy it while it lasts and build on this," Drinkwater said. "You could call it a reaction, we have come under a bit of stick."
Vardy said he could not put his finger on why Leicester had suddenly produced a performance worthy of champions after a pitiful defence of their title.
"We've been working hard on everything we've been asked to do but it's not been happening. Tonight it all clicked."
Leicester's players looked fired-up from the first whistle and Vardy caught Sadio Mane with an ugly tackle inside a minute.
Liverpool, well-rested after a two-week break and some warm weather training in Spain, lacked any rhythm and keeper Simon Mignolet was called into action to stop a Robert Huth header.
Leicester's caretaker manager Craig Shakespeare made only one change from the side that took to the field for Ranieri's final game -- last week's 2-1 loss in Sevilla in a Champions League last-16 first leg -- bringing in Shinji Okazaki for Ahmed Musa.
Okazaki's flying header forced Mignolet into another save before Vardy scuffed a volley at the Liverpool keeper having produced a wonderful piece of skill to control a high ball.
The England striker, playing higher up the pitch on Shakespeare's instructions, made no mistake in the 28th minute though, racing on to Marc Albrighton's perfectly-weighted pass before drilling a powerful shot past Mignolet.
It was Leicester's first goal for 638 minutes, and 11 minutes later they had another. James Milner's clearance bounced towards Drinkwater 25 metres out and the midfielder steadied himself before launching a rocket that flashed into the net.
The expected Liverpool response never materialised after the break and Leicester went further ahead on the hour when Vardy timed his jump perfectly to head in Christian Fuchs's cross.
Leicester's fans roared "3-0 to the champions" while also chanting the name of Ranieri and it was easy to imagine they had been transported back to last season when their team took the title by 10 points.
Coutinho scored in the 69th minute with a cool side-foot finish and the visitors suddenly came to life, although it was too little too late for Juergen Klopp's side who have won only once in seven league games.
(Reporting by Martyn Herman; Editing by Clare Fallon)
Share
