For the second week running Liverpool shared eight goals, but while their thriller at Chelsea [ Images ] meant they exited the Champions League [ Images ] full of pride, they will rue the two points dropped against the Gunners despite going top of the table.
Liverpool have 71 points and are above Manchester United [ Images ] on goal difference but United have seven games remaining to Liverpool's five, starting at home to Portsmouth on Wednesday.
Chelsea are third on 67, with Arsenal fourth on 62.
The lethal Arshavin, Arsenal's record signing, seemed to have won a rip-roaring contest after a quick counter-attack in the 90th minute only for Yossi Benayoun [ Images ] to grab a stoppage-time equaliser for Liverpool with his second goal of the night.
Fernando Torres [ Images ] also struck twice and had a late header cleared off the line as Liverpool threw everything forward. However, crucial mistakes at the back cost them dearly as they strive for a first English title since 1990.
"We made too many mistakes but we showed character and never gave up so that's a positive for the rest of the season," Liverpool manager Rafael Benitez told Sky Sports.
"It's difficult to explain. Maybe we were a bit nervous and had some anxiety but it's one more point against a good team.
"United are in the driving seat but we showed until the last minute that we fight and we will do until the last game."
Liverpool, still without injured captain Steven Gerrard [ Images ], marauded forward from the first whistle with Torres having two early chances to put them ahead and Benayoun bravely denied by Arsenal keeper Lukasz Fabianski.
Arshavin gave Arsenal a shock lead nine minutes before halftime from Cesc Fabregas's [ Images ] pull back.
Liverpool came out firing in the second half and within 10 minutes of the restart they were ahead.
First, Torres sent a bullet header into the corner from Dirk Kuyt's [ Images ] cross and Kuyt was again the supplier as he lofted a ball into the area for Benayoun to touch over the line.
At that stage Liverpool looked set to stretch away but they were guilty of some terrible defending.
After 67 minutes Arshavin robbed Alvaro Arbeloa [ Images ] of the ball and strode on to thrash a shot past Pepe Reina [ Images ] and he completed his hat-trick three minutes later when Fabio Aurelio's sloppy clearance fell at his feet.
Two minutes later Torres showed a magic touch to work some space and shoot past the despairing dive of Fabianski and the Spaniard was then denied a hat-trick when his glancing header was nodded off the line by young left back Kieran Gibbs [ Images ].
As Liverpool searched for the winner, Walcott raced upfield and played in Arshavin, who again showed just why Arsenal pursued him for so long when he was at Zenit St Petersburg [ Images ] by walloping another shot past Reina.
Liverpool's title dream appeared to be shattered but there was still time for Benayoun to cap a superb display with a scuffed winner when the ball dropped to him in the area.