Arsenal would have gone top had they avoided defeat but fell behind as early as the ninth minute when Josh Gordon (pictured above, centre) struck.
Josh Felix-Eppiah doubled Leicester's advantage before the break and Harvey Barnes made it 3-0 on the hour mark.
Arsenal's evening took a turn for the worse when Tyreece John-Jules was sent off straight from the restart.
Vlad Dragomir scored a late consolation for the visitors which stopped the Foxes from going top.
That goal meant Liverpool remain ahead of Leicester, their next PL2 opponents, on goals scored.
The Foxes have played one more match than both the Merseysiders and Arsenal and are a point ahead of the Gunners.
Leicester: 26 Feb v Everton (H) PL Cup
Arsenal: 24 Feb v Dinamo Zagreb II (H) PL Int Cup