Referee Paul Tierney had not given a decision on the pitch and the off-field official said there was no reason to change that
Having laboured to take an 82nd minute lead through Phil Foden, VAR was asked to rule on a ball which struck the arm of midfielder Rodri.
Referee Paul Tierney had not given a decision on the pitch and the off-field official said there was no reason to change that, much to the fury of home fans who had the old stadium bouncing again after watching an encouragingly hearty performance from their team.
It was a huge escape for Pep Guardiola’s side, who extended their lead over Sunday’s Carabao Cup finalists Liverpool back to six points having played one match more, and harsh on opponents who worked incredibly hard in the face of increased relegation pressure.
Referee Tierney and VAR official Chris Kavanagh were the duo who opted not to send off Harry Kane during Liverpool's 2-2 draw against Tottenham in December and now the pair have combined to serve up another decision that could have a huge impact on the title race.
"Go to VAR, they have two minutes to look at it and to think they have not given that as a penalty when it strikes him on the arm, in an unnatural position. I have a three year old daughter at home who could tell you that was a penalty," said Everton boss Frank Lampard.
"We are fighting at the bottom of the table and they are fighting at the top. Decisions are crucial. I don't know what has to happen as a reflection of that. A mistake is when you have done something wrong and don't have time to think about it, they had two minutes to digest the handball.
"Even if the VAR says not sure, then go have a look. It is incompetence at best, if not that then someone needs to explain what it is."
The decision sparked outrage from Liverpool fans on social media with the club's former striker and Sunday World columnist John Aldridge pointing an accusing finger at the match officials with this tweet:
City manager Pep Guardiola claimed the penalty incident was not significant as there was an offside decision against Everton in the build-up to the Rodri handball, but that was dismissed after the match.
Instead, Guardiola focused his attention on a win that moved his side six points ahead of Liverpool, with Jurgen Klopp's side having played a game less.
"I have to admit really important," said Guardiola. "The second half was much better for the consequences of the first half. Goodison Park for us is always so difficult. Good victory, another step.
"In general we controlled in the second half, not a lot because it was not possible but the second half much, much better.
"When the opponent decides the striker to mark the midfielder it is difficult with the spaces. Everton make a moment. It is difficult, we knew it. I said to the guys they are doing well and be patient and we will find the moment.
"We did everything to win. When you have that the manager will be alongside the players that is for sure. Have to try again and try again and in the end Phil was there and score.
"We were searching. We tried and we were there. We earned the good fortune. Everton has top players. Their quality is there, we knew it."
Read John Aldridge's verdict on Liverpool's Carabao Cup final against Chelsea in this weekend's Sunday World.