The Gunners led three times at the Emirates as Gabriel Martinelli struck within a minute and Saka scored in first-half stoppage time.
Darwin Nunez and Roberto Firmino replied for Liverpool either side of half-time, but Jurgen Klopp’s men are now 14 points adrift of the leaders after winning just two of their opening eight league games.
Worse could be to come for Liverpool as they face Manchester City at Anfield next weekend.
Arsenal restored their one-point lead over City and further strengthened their case to be considered serious title contenders after beating Tottenham in the north London derby last weekend.
Mikel Arteta’s men sped out of the blocks as Martinelli exposed the space in behind under-fire Liverpool right-back Trent Alexander-Arnold to sweep home the opener.
Liverpool responded well to falling behind as Klopp’s brave selection of a front four paid off when Luis Diaz squared for Nunez to score his first Premier League goal since the opening weekend of the season.
Just as the visitors seemed to be on top, Arsenal retook the lead as Martinelli’s cross was tapped in at the back post by Saka.
Liverpool reacted again after the break when substitute Firmino produced a clinical finish across Aaron Ramsdale.
But the decisive moment of an enthralling encounter came 14 minutes from time when Thiago Alcantara was harshly adjudged to have clipped Gabriel Jesus inside the area.
Saka slotted the ball into the bottom corner from the spot to spark jubilant scenes of celebration as Arsenal fans dream of a first league title since 2004.
Gianluca Scamacca scored for a third successive game as West Ham came from behind to beat Fulham
Earlier, Gianluca Scamacca’s delightful chip helped West Ham strike back from a goal down to beat Fulham 3-1
The Italian international has scored six times in his last 10 games for the Hammers since a £30 million move from Sassuolo, but David Moyes’ men were forced to come from behind at the London Stadium.
Fulham were without talisman Aleksandar Mitrovic through injury but went in front after just five minutes when Andreas Pereira smashed in from a narrow angle.
Jarrod Bowen levelled from the penalty spot before half-time after Pereira brought down Craig Dawson in the box.
Scamacca then produced a moment of magic as he lofted Lucas Paqueta’s pass over the helpless Bernd Leno.
Michail Antonio came off the bench to secure the three points in stoppage time.
After winning just one of their first seven league games, back-to-back victories have lifted West Ham to within four points of the top six.
Crystal Palace also came from behind after Pascal Struijk’s early goal for Leeds at Selhurst Park.
Odsonne Edouard headed in Eberechi Eze’s free-kick to quickly level and Eze sealed a 2-1 win 14 minutes from time with a fine low strike from Wilfried Zaha’s backheel.
Manchester United are in action later on Sunday when the Red Devils travel to Everton
