Ismaila Sarr put Crystal Palace ahead in the 41st minute.
With 74 points now, Arsenal will be at the summit of the league table unless Liverpool beat Fulham by more than 10 goals or if Manchester City win fixture against Brighton.
A much-improved attacking display was needed from the visitors, who ramped up the pressure in search of an equaliser after the break.
It took City just 56 seconds to take the lead at Molineux Stadium as Jack Grealish fired in his first goal of the season.
The Tuesday night result came as England’s biggest defeat on their home turf since 1928.
With Chelsea drawing blank at Wolves, they are now six points adrift league leaders Manchester City who won at Newcastle.
