After beginning the season with a 15-game unbeaten run, City lost for the second time in three matches as, after boasting a 13-point lead at Christmas past year, they now have a four-point deficit to Liverpool.
The Blues had led through Ilkay Gundogan's header, but were pegged back by two quickfire goals from the visitors who increased their lead from the penalty spot shortly after the break.
The result ended City's 100 percent home record this season and means they will spend Christmas four points adrift of leaders Liverpool.
Ball boy interrupts play as Crystal Palace edge Man City 3-2
"We reacted well after the second goal but the second half we started OK, but the third goal, the penalty was really tough for us".
But Jeffrey Schlupp brought Palace level with a low diagonal shot into the bottom corner and Townsend stunned the Etihad Stadium with a sensational volley that will surely be a goal-of-the-season contender.
Kevin De Bruyne pulled one back late on, but it proved too late in the day and Palace held on.
Mark Lawrenson states his prediction for Cardiff v Man Utd
In the long run, to get consistent results and consistent wins, we have to play in a certain way. "But that is the past and I want to thank him for that".
Liverpool opened up a four-point lead at the top with a highly impressive 2-0 win at Wolves on Friday to extend their unbeaten start to the campaign.
It seems unlikely that Guardiola would want to sign a new full-back in January, even if Walker's form is becoming something of a problem as City bid for Premier League and Champions League silverware, but there are options available to him.
'But Jurgen Klopp I think he looks like a dream to work for and, as we talk about Manchester United, that's a manager which Man United need to get in, in that style and with that philosophy'. "His side were able to ask a lot of questions but we managed to come up with the answers".
Reunited? Cardi B and Offset Enjoy Jet Ski Ride in Puerto Rico
Cardi B just revealed during a live video that her encounter with Offset in Puerto Rico does not mean that they are back together. A few days later, Offset made his first public statement, tweeting, " F- YALL I MISS CARDI ".
As a Crystal Palace cross skidded across the front of the goal and along the touchline, a ball boy ran to intercept it.
On a day of top-flight upsets, former England striker Jamie Vardy scored the only goal to guide Leicester to a 1-0 victory at Stamford Bridge and inflict fourth-placed Chelsea's first home league defeat of the season as well.
Roy Hodgson's Palace had picked up just one point from their last six away games and had not won at City since 1990.
Zero becomes Shah Rukh Khan’s 5th highest Opening Day grosser
As per boxofficeindia.com, the opening in terms of occupancy is a little less than 2.0 (Hindi) but the release is wider. The film is getting a mixed response but the team of Aanand L Rai's film have still touched many hearts with the story.