Mikel Arteta's visiting side had started on the backfoot with Erling Haaland scoring his 100th City goal in fantastic fashion to give the hosts a deserved lead in the 9th minute.
Their advantage was then undone as Arsenal's summer recruit Riccardo Calafiori scored a sensational first goal for the club to pull the visitor's level against the run of play.
Fierce conversations broke out with referee Michael Oliver as Arsenal's goal was confirmed with Walker leading the charge as he berated the match official for allowing a free-kick to be taken quickly.
Oliver had pulled Walker over to the middle of the pitch for a chat after awarding a free-kick and then proceeded to allow the set-piece to be taken before the City defender was back in position.
Kyle Walker and his Manchester City team-mates were left fuming as Arsenal equalised in Sunday's huge Premier League clash
Arsenal attacked down his wing through Gabriel Martinelli whose pass ended up setting an unmarked Calafiori up for a thumping finish that he scored with apparent ease.
Walker and his colleagues were waved away by Oliver, while City boss Pep Guardiola also fumed in the dugout after the strike was allowed to stand to give Arsenal hope of pulling off a first victory over their title rivals under Arteta.
Such was Guardiola's anger that he kicked out at his chair in the technical area while also shouting at Walker for being caught out of position.
Analysing the bizarre situation at half-time, former City Premier League winner, Micah Richards admitted Walker was justified in being angry but stressed he could have got back in position quicker.
'You see it here with the foul and where the foul is, then they call over Kyle Walker to see what's going on and speaks to the referee,' Richards told Sky Sports.
'Kyle Walker is jogging back, he should be sprinting back in fairness, Arsenal take the free-kick and it's a bit too easy.
'I feel sorry for him at the first part as he wasn't set but could have got back quicker,' he said.
City's troubles were then made even worse as Gabriel scored to give Arsenal a 2-1 lead before half-time.