The Barclays Premier League champions were outplayed in all areas of the field. Beaten by two Sergio Aguero strikes either side of a Yaya Toure goal before Samir Nasri made it 4. United could only grab a consolation goal through a well taken 25 yard free-kick from Wayne Rooney.
The only positive United can take from the game is Wayne Rooney is now the highest scorer in the Manchester derbies with 11 goals.
City are now three points ahead of their local rivals in the league table and two points behind leaders Arsenal.
Manchester United were without their top goal scorer from last season, Robin van Persie, due to a thigh strain.
City's first goal came after some poor United defending, Chris Smalling was left one-on-one with Samir Nasri, and United's Antonio Valencia failed to track back allowing Kolarov to out run him and play the ball across the box to Sergio Aguero who netted with a superb left-footed volley.
Kompany and Wayne Rooney battled against one another throughout the first half, and Rooney was booked for a supposed fourth foul in the first half according to referee Howard Webb.
There was an additional minute added onto the first half, and that's when City struck again. Zabaleta won a corner off of Ashley Young and from Nasri's cross Negrado headed the ball down and towards goal. Yaya Toure made a charge for the ball at the back post and forced the ball over the line from a touch off of his knee.
City went in at half time 2-0 to the good, and United needed some picking up from manager David Moyes.
Two minutes into the second half and City made it 3-0. Negrado spun United captain Nemanja Vidic on the left side of the area and knocked a simple cross over for Aguero, who had not been tracked and netted his second goal of the game.
Three minutes later it was 4-0 and all over for Manchester United. Kompany played a key part in the fourth, picking up the ball and laying it off to Jesus Navas who ran down City's right flank. Kompany continued his run into the United half, drawing United's center-backs to him and making space for Nasri at the back post. Navas saw his team-mate open and chipped the ball over to him, Nasri volleyed the ball in at the far post.
David Moyes then introduced Tom Cleverley for Ashley Young, who'd had a disappointing game.
Valencia had an appeal for a penalty turned down as he tussled with Kolarov outside the area, into the area.
From a United corner in the 81st minute, vice-captain Evra headed the ball against the City post, and that was the closest they had come to goal until Wayne Rooney dispatched his well taken free-kick in the 87th minute.
Manchester United will now have to pick themselves up for their next game in the Capital One Cup against Liverpool on Wednesday evening.
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