Liverpool's hopes of closing the gap in the race for a Champions League spot were dealt a massive blow as goals from Walter Pandiani and Julian Gray sealed victory for Birmingham.

The door had been left ajar for the Reds after Everton's lunchtime defeat by Chelsea and a win at St Andrews would have cut the gap over their Merseyside rivals to two points.

But Liverpool never looked capable of registering a third successive Premiership victory once Pandiani, nicknamed 'the Rifle' because of his ferocious shooting, had broken the deadlock from the penalty spot.

It was his second goal in three games since completing a loan move from Deportivo La Coruna until the end of the season.

Gray quickly volleyed in the second on the stroke of half-time and ineffective Liverpool never threatened to make a comeback despite Rafael Benitez switching from a 4-4-1-1 to a 4-4-2 formation.

Liverpool were unrecognisable from the side which had won at Charlton in their last away fixture and this was a showing more akin to that produced in the 2-0 defeat at Southampton last month.

They were never allowed to settle by a Birmingham side who look to have rekindled the fighting spirit which has been their trademark under Steve Bruce.

Liverpool struggled to cope with the wing play of Jermaine Pennant and Gray plus the physical presence of Heskey who turned in a man-of-the-match performance against his former club.

Stephen Clemence had one of his best games in midfield, winning countless important challenges, while skipper Kenny Cunningham was outstanding at the back.

Heskey was soon causing problems and his shot on the turn was blocked by Sami Hyypia and then Pandiani did well to reach a deep Pennant cross at full stretch but sent his volley flew wide.

Steven Gerrard nearly created an opening for Liverpool with a sharp turn and a low cross in the direction of Fernando Morientes but he was unable to make a full contact and the ball squirmed away from Maik Taylor's goal.

Birmingham defender Mario Melchiot limped out of the action after 17 minutes with an ankle injury to be replaced by Olivier Tebily who found it hard to contain the marauding runs of John Arne Riise down the left flank.

Morientes produced the first effort on target after 32 minutes but it was a weak effort which flew straight at Taylor after a slip in the penalty area by Damien Johnson.

Blues started to build up some pressure and Riise did well to block a volley from Pennant which looked goal-bound before the on-loan Arsenal player then squandered the best chance to date.

He found himself with a clear run at goal after Pandiani had slipped the ball in behind the Liverpool defence.

Jerzy Dudek came out quickly to make the target as small as possible and Pennant hesitated and his eventual shot was blocked by the Polish keeper.

But after 37 minutes St Andrews erupted when Pandiani collected his second goal in three games from the penalty spot since his loan move from Deportivo La Coruna.

Cunningham played the ball into the area and Heskey was clearly held back by Hyypia. Up stepped Pandiani to hammer the ball into the roof of the net.

Liverpool had the chance to reply almost immediately but the unmarked Riise sent his header wide from Gerrard's deep cross.

Then in the 45th minute Blues doubled their lead with Gray volleying home at the far post after another inviting cross from the livewire Pennant who turned Djimi Traore inside out.

Benitez made a halftime switch, bringing on Vladimir Smicer for the ineffective Igor Biscan and reverting to a 4-4-2 formation.

Tebily became the first player to be yellow-carded after 49 minutes for a clumsy challenge on Milan Baros but Gerrard drove his free-kick into the defensive wall.

Gerrard was urged to calm down by referee Webb after a crude looking challenge on Stephen Clemence as tempers showed signs of becoming frayed.

Benitez opted for a second switch after 62 minutes, bringing on Antonio Nunez, who had completed a three-match ban, in place of Riise.

Birmingham were battling for every loose ball as if their lives depended on it to deny Liverpool a route back into the game and a rare attempt on goal from Baros flew well wide.

Teams:

Birmingham: Maik Taylor, Melchiot (Tebily 18), Cunningham, Upson, Clapham, Pennant (Nafti 84), Johnson, Clemence, Gray, Heskey, Pandiani (Blake 89).

Subs Not Used: Bennett, Anderton.

Booked: Tebily, Heskey.

Goals: Pandiani 38 pen, Gray 45.

Liverpool: Dudek, Finnan (Pellegrino 79), Hyypia, Carragher, Traore, Baros, Hamann, Gerrard, Biscan (Smicer 45), Riise (Nunez 63), Morientes.

Subs Not Used: Warnock, Carson.

Att: 29,318

Ref: H Webb (S Yorkshire).