Ruben Dias knocked a Pedro Neto cross into his own net after the Wolves winger raced through the City defence, comfortably easing past Nathan Ake.
However, Julian Alvarez curled a free-kick past Jose Sa to level parity for Man City.
But then, Hwang Hee-chan restored Wolves lead, coolly tucking home after Matheus Cunha found him unmarked in the box.
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Pep Guardiolas men remain top of the table despite defeat, but could be knocked off their perch if Liverpool beat Tottenham in Saturdays late game.
Wolves are 13th with seven points from seven matches.
In the other game, Crystal Palace pipped Man United 1-0 at Old Trafford on Saturday.
Palace took the lead when Andersen superbly drove a first-time effort into the top corner after a free-kick.
It is now four defeats in seven Premier League games for Ten Hags side, who have endured their worst start to a league season after seven games in 34 years.
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