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City have now failed to win their last three home games (1-1 vs Liverpool and 3-3 vs Tottenham Hotspur).
Jack Grealish opened the scoring for City in the 24th minute before Rico Williams made it 2-0 on 54 minutes.
Jean-Philippe Mateta pulled a goal back for Palace in the 76th minute before Olise converted a 95th minute penalty to earn a share of the spoils for his side.
City remain in fourth place on 34 points in the league table.
At St. James Park, Alex Iwobi was in action for 10-man Fulham who lost 3-0 at Newcastle United.
Calvin Bassey was not in the Fulham squad for this weekends game.
Fulham had to play most part of the game with 10 men after Raul Jimenez was shown a straight red card on 22 minutes.
After holding out for long Fulham eventually cracked as Newcastle took advantage of the sending off and netted three second half goals.
At Stamford Bridge, Chelsea returned to winning ways after overcoming Sheffield United 2-0.
Prior to the game, the Blues lost to Manchester United and Everton.
Meanwhile, the game between Bournemouth and Luton Town was abandoned with score at 1-1 in the first half after the captain of the latter Tom Lockyer collapsed on the pitch.
However, a statement from Luton indicated that Lockyer is now responsive and has been taken to hospital.
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