Rangers' reputation as the division's entertainers - they had scored four goals in each of their last three games - had clearly spread as England boss Fabio Capello joined fellow Italian Flavio Briatore in the directors' box.
Capello may have winced at some of the defending on show, but two in-form sides produced an end-to-end encounter in front of a season's best crowd of 17,082.
However, the majority went home disappointed after Rangers lost their unbeaten home record and blew the chance to go third.
The teams traded blows in the opening quarter of an hour, with Fryatt twice going close and Jay Simpson and Wayne Routledge threatening for Rangers.
Leicester thought they had taken the lead in the 16th minute when Martyn Waghorn slid in to convert Dany N'Guessan's cross, but the on-loan Sunderland frontman was flagged offside.
At the other end, a free-kick from £3.5million Argentinian Alejandro Faurlin was destined for the top corner until Chris Weale stuck out a palm.
Rangers went ahead in the 33rd minute when Taarabt burst forward, played a one-two with Simpson on the edge of the area and expertly swept his right-foot shot past Weale.
The on-loan Tottenham midfielder had another crack moments later, skipping past Andy King before firing just wide.
But it was Leicester who struck next, the lead lasting just five minutes before Rangers failed to deal with N'Guessan's cross and Fryatt's simple header ended his six-game goal drought.
Waghorn was inches away from putting City ahead after the break when he just missed another N'Guessan centre.
But they were gifted the lead in the 64th minute when Cerny attempted a short clearance which Fryatt read and duly dispatched back past the veteran Czech for his 10th goal of the season.
Weale bravely denied Routledge to protect the lead and Akos Buzsaky missed a gilt-edged chance to snatch a point when he blasted over from 10 yards with five minutes remaining.