Liverpool slumped to its sixth loss of the Premier League season on Wednesday, with a 3-1 collapse at Stoke stalling another attempt to close in on the Champions League places.
The well-deserved success for Tony Pulis' men lifted them above their opponents to eighth in the Premier League table, with Brendan Rodgers' inconsistent visitors now down in 10th.
There was an explosive opening to the final top-flight encounter of a busy Boxing Day with Ryan Shawcross rightly penalized for pulling Luis Suarez shirt by referee Howard Webb with barely 30 seconds on the clock.
Liverpool captain Steven Gerrard took responsibility and made no mistake from 12 yards, firing low and hard into the bottom corner as the visitors picked up from where they left off having romped to a 4-0 weekend win over Fulham.
But Stoke were back on terms soon after as Martin Skrtel's costly slip in defense after a long ball forward allowed Walters to burst into the box and beat Reina with some style.
And the hosts were in front in the 12th minute as the Reds switched off badly at a corner, allowing Kenwyne Jones to advance to the far post before glancing a header home, with no marker or man on the upright in sight for Liverpool.
Reina then had to be at his best to tip over a searing drive from Matt Etherington, while Gerrard side-footed narrowly wide at the other end of the field after good work from Stewart Downing and Suso down the flank.
Suarez drilled in a low shot from a tight angle which Asmir Begovic did well to block at his near post and as the interval approached Reina was quickly off his line to smother Etherington's shot following a deep cross to the back post.
The Uruguay international then clipped the outside of Begovic's post with a scuffed shot at the start of the second period as Liverpool looked to get back on terms, only to find themselves further in arrears in the 49th minute.
Walters showed superb technique to chest down Jones' flick on after a long throw into the penalty area before firing a first-time volley beyond the despairing dive of Reina.
The Reds goalkeeper needed treatment after a nasty collision with Dean Whitehead in the 70th minute as they contested a low ball into the box, but was thankfully able to continue.
Rodgers' side pressed in a vain attempt to get back into the game in the closing stages, but often looked more likely to concede on the break than find a way past Begovic once again, with the Potters No.1 turning away a long-range effort from Gerrard in the last minute.
The Associated Press was used in this report.