Manchester City thumped Championship (second division) Scunthorpe United 5-1 to take their place in the last eight and Chelsea saw off Bolton Wanderers 4-0 at Stamford Bridge.
That trio joined holders Manchester United, last year's runners-up Tottenham Hotspur, Blackburn Rovers, Portsmouth and Aston Villa in an all-Premier League draw for the quarterfinals which takes place on Saturday.
Manager Arsene Wenger, in charge of Arsenal for the 750th time and seeking his club's first silverware since 2005, put his faith in younger players as he usually does in this competition and they rose to the occasion with a well-deserved win.
Fran Merida, their 19-year-old Spanish midfielder, put them ahead with a superbly struck curling left-foot shot after 19 minutes, before Liverpool equalised with an equally stunning shot from Argentine Emiliano Insua, his first for Liverpool, six minutes later.
Liverpool, also fielding a team of promising youngsters and seeking their first win at Arsenal for nine years, played excellent football but were eliminated after Niklas Bendtner scored with a powerful left-foot drive after 50 minutes.
Pedro strikes
Pedro scored twice to give holders Barcelona a 2-0 lead over third-tier side Cultural Leonesa in the last 32 of the King's Cup on Wednesday.
Bojan Krkic's snaking run helped set up Pedro for the opener after 41 minutes, and another product of the Barca youth system, forward Jeffren, curled in a cross that left Pedro free to volley the second just after the hour mark.
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