
In their first match since manager Claudio Ranieri was sacked after five successive defeats in which they failed to score a goal, Leicester produced the kind of vibrant display that carried them to glory last May.
Liverpool were simply overwhelmed as their hopes of a top-four finish suffered a severe setback.
Vardy gave Leicester the lead in the 28th minute with his first league goal since December.
Danny Drinkwater made it 2-0 with a stunning volley six minutes before halftime and Vardy headed rejuvenated Leicester's third on the hour as Liverpool crumbled.
Liverpool enjoyed plenty of possession and Philippe Coutinho gave them a lifeline after 69 minutes but Leicester held on for a crucial victory which took them up three places to 15th.
"It feels good, we need to enjoy it while it lasts and build on this," Drinkwater said. "You could call it a reaction, we have come under a bit of stick."
Vardy said he could not put his finger on why Leicester had suddenly produced a performance worthy of champions after a pitiful defence of their title.
"We've been working hard on everything we've been asked to do but it's not been happening. Tonight it all clicked."
Leicester's players looked fired-up from the first whistle and Vardy caught Sadio Mane with an ugly tackle inside a minute.
Liverpool, well-rested after a two-week break and some warm weather training in Spain, lacked any rhythm and keeper Simon Mignolet was called into action to stop a Robert Huth header.
[caption id="attachment_49464" align="aligncenter" width="640"]

Leicester City's Kasper Schmeichel saves from Liverpool's Philippe Coutinho
Reuters [/caption]
Leicester's caretaker manager Craig Shakespeare made only one change from the side that took to the field for Ranieri's final game -- last week's 2-1 loss in Sevilla in a Champions League last-16 first leg -- bringing in Shinji Okazaki for Ahmed Musa.
Okazaki's flying header forced Mignolet into another save before Vardy scuffed a volley at the Liverpool keeper having produced a wonderful piece of skill to control a high ball.
The England striker, playing higher up the pitch on Shakespeare's instructions, made no mistake in the 28th minute though, racing on to Marc Albrighton's perfectly-weighted pass before drilling a powerful shot past Mignolet.
It was Leicester's first goal for 638 minutes, and 11 minutes later they had another. James Milner's clearance bounced towards Drinkwater 25 metres out and the midfielder steadied himself before launching a rocket that flashed into the net.
The expected Liverpool response never materialised after the break and Leicester went further ahead on the hour when Vardy timed his jump perfectly to head in Christian Fuchs's cross.
Leicester's fans roared "3-0 to the champions" while also chanting the name of Ranieri and it was easy to imagine they had been transported back to last season when their team took the title by 10 points.
Coutinho scored in the 69th minute with a cool side-foot finish and the visitors suddenly came to life, although it was too little too late for Juergen Klopp's side who have won only once in seven league games.
RESULTS:
Leicester City 3 Vardy 28,60, Drinkwater 39
Liverpool 1 Coutinho 68
Sunday, February 26
Tottenham Hotspur 4 Harry Kane 14,32,37, Dele Alli 45+1
Stoke City 0
Saturday, February 25
Watford 1 Deeney 3(pen)
West Ham United 1 Ayew 73
Chelsea 3 Fabregas 19, Pedro 72, Costa 84
Swansea City 1 Llorente 45+2
Crystal Palace 1 van Aanholt 34
Middlesbrough 0
West Bromwich Albion 2 Dawson 10, McAuley 21
Bournemouth 1 King 4(pen)
Hull City 1 Huddlestone 72(pen)
Burnley 1 Michael Keane 76
Everton 2 Idrissa Gueye 40, Lukaku 80
Sunderland 0
Standings P W D L F A
Pts
1
Chelsea 26 20 3 3 55 19
63
2
Tottenham Hotspur 26 15 8 3 50 18
53
3
Manchester City 25 16 4 5 51 29
52
4
Arsenal 25 15 5 5 54 28
50
5
Liverpool 26 14 7 5 55 33
49
6
Manchester United 25 13 9 3 38 21
48
7
Everton 26 12 8 6 42 27
44
8
West Bromwich Albion 26 11 7 8 36 32
40
9
West Ham United 26 9 6 11 35 44
33
10
Stoke City 26 8 8 10 30 40
32
11
Burnley 26 9 4 13 28 37
31
12
Watford 26 8 7 11 30 43
31
13
Southampton 25 8 6 11 28 31
30
14
Bournemouth 26 7 5 14 36 51
26
15
Leicester City 26 6 6 14 27 44
24
16
Swansea City 26 7 3 16 32 57
24
17
Middlesbrough 26 4 10 12 19 28
22
18
Crystal Palace 26 6 4 16 33 46
22
19
Hull City 26 5 6 15 23 50
21
20
Sunderland 26 5 4 17 24 48
19
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