The England international struck twice in the space of two minutes as City came from behind to beat Borussia Monchengladbach 4-2 at the Etihad Stadium.
City had trailed after the Germans replied to David Silva's early strike through Julian Korb and Raffael but Sterling turned the game around late in the second half and Wilfried Bony added the final gloss.
With Juventus losing at Sevilla, the result was enough for City to leapfrog the Italians to the top of Group D while Monchengladbach slipped to the bottom and missed out on a Europa League spot.
The attacking verve with which City finished the game - Sterling's equaliser only came in the 79th minute - was reward for a determined second-half display but for most of the game the frustration in the crowd was evident.
It was the 3,000 Monchengladbach fans who made most of the noise and their side gave City an early scare as Korb broke clear.
Sterling had a harsh introduction as he was caught in the chest by the boot of Havard Nordtveit but was soon back on his feet and linking nicely with Kevin De Bruyne and Silva in a fluid attacking trio.
City started without an out-and-out centre forward having left Bony on the bench and with Sergio Aguero still injured, but it initially looked like it would not matter.
The arrangement paid off in the 16th minute as Sterling played Silva in on goal with a nifty backheel and the Spaniard took full advantage as he rifled a shot into the roof of the net.
But City's weaknesses at the back in the continued absence of captain Vincent Kompany were again evident as Monchengladbach claimed an immediate equaliser.
Gael Clichy, making on his third appearance of the season, looked uncomfortable in the right-back slot and was caught out as Fabian Johnson charged forward
Eliaquim Mangala and Nicolas Otamendi were slow to respond and Johnson's low ball across the box was rifled home by Korb.
The contest was an open one with both sides showing attacking intent but both Sterling and Yaya Toure were wayward with attempts on goal.
City were cracked open again before the break as Oscar Wendt drilled in a low cross and Johnson's shot was diverted past Joe Hart by Raffael.
The Germans then began to frustrate City but the hosts upped the tempo after the break with Sterling coming to the fore.
The £49million man almost nipped in as Nico Elvedi chested the ball back to Yann Sommer but the goalkeeper just cleared.
Sterling ran across the area to tee up Silva and then shot himself but Sommer saved on both occasions
Sommer then produced a fine reflex save to deny Sterling on the volley after a Toure effort was blocked.
The pressure finally paid off 11 minutes from time as Clichy pulled the ball back from the byline and unmarked Sterling turned in from close range.
A quick counter-attack a minute later led to another two minutes later as Sterling brilliantly swept home a pass from substitute Bony.
Monchengladbach were beaten and Bony finished the job five minutes from time with a close-range finish after his initial effort was blocked.
TWEET OF THE MATCH
"What a fantastic evening! We needed that! #MCFC." Former Manchester City striker Franny Lee (@FrannyLee7).
https://twitter.com/FrannyLee7/status/674343356210798593
RATINGS
Manchester City
Joe Hart: 6
Aleksandar Kolarov: 7
Nicolas Otamendi: 5
Eliaquim Mangala: 5
Gael Clichy: 6
Fernandinho: 7
Fabian Delph: 6
Kevin De Bruyne: 6
Yaya Toure: 7
David Silva: 8
Raheem Sterling: 9
Substitutes:
Jesus Navas (for De Bruyne, 65): 6
Wifried Bony (for Delph, 65): 7
Bacary Sagna (for Clichy, 80): 6
STAR PLAYER
Raheem Sterling
Celebrated his 21st birthday in style with a fine all-round performance, teeing up the opener for David Silva with a clever backheel, persistently knocking on the door as City looked to get back in the game at the start of the second half, and then providing two clinical strikes in quick succession to turn the contest the hosts' way once again late on.
MOMENT OF THE MATCH
Sterling makes it 3-2
Knowing only a win would give them the chance to top the group, City kept their foot firmly on the throttle after drawing level in the 79th minute and within seconds they had added the goal to hand them the lead as the ball moved swiftly from Silva, to Bony and on to Sterling, who applied a delightful finish.
VIEW FROM THE BENCH
City boss Manuel Pellegrini will be overjoyed with his side's second-half efforts and the fact they were rewarded with the club taking top spot in a Champions League group for the first time.
But there may well be a fair degree of relief too - for a while it looked as if the Blues might be left kicking themselves over a major opportunity missed, with them still trailing while Sevilla were beating Juventus.
MOAN OF THE MATCH
A familiar gripe
City made it a hard night's work for themselves as sloppy defending allowed their opponents through to score twice in the first half - and again, it was a backline struggling in the absence of skipper Vincent Kompany.
WHO'S UP NEXT?
Manchester City v Stoke (Barclays Premier League, Saturday December 12)
Source : PA
Source: PA