A crazy first half saw a Norwich side run riot and seal all three points with an incredible six goals before the break.
It all began with a penalty converted by Nelson Oliveira in the third minute of the game. Wes Hoolahan dinked a second past Al Habsi from close range and Alex Pritchard smashed an unstoppable effort into the top corner.
Every attack seemed to end in a goal, Russell Martin's stabbed effort deflected into the Reading goal from close range, then Pritchard tucked the ball into the bottom right corner for 5-0. Yann Kermorgant pulled one back but before the half-time whistle it was 6-1 when Hoolahan toed home from yards out.
Cameron Jerome toed home an 89th minute finish to cap off a home display that Reading couldn't cope with. And Reading will look to bounce back at Aston Villa next weekend.
Royals boss Jaap Stam made two changes to the eleven that started in the home win over Blackburn on Tuesday night, restoring Garath McCleary to the starting line-up in place of Roy Beerens, while also adding Lewis Grabban to the team as Adrian Popa dropped to the bench.
The hosts took the lead within the opening three minutes when referee James Linington pointed to the spot for an early penalty kick. Ali Al Habsi had parried a shot from distance, but Nelson Oliveira had reacted fastest to get to the rebound but passed the ball wide of the goalmouth under pressure from Gunter. The whistle sounded though and the official pointed to the spot, for a push by Gunter on Oliveira. And the forward tucked the spotkick away with a low finish.
The Royals looked to respond and a nice move forward ended with McCleary's cross being met by Kermorgant - but the two-goal hero from Tuesday night watched his header float back across goal and wide on this occasion.
Ten minutes played and Gunter marauding forward was brought down 25 yards out. Kermorgant placed the ball but his strike was easily saved by John Ruddy on the goalline.
The game was open and moments after a superb Swift run had ended with an offside flag against Grabban in the City box, Oliveira arced a shot just wide of the left upright at the other end.
And Norwich doubled their lead soon after. A low cross from the left bobbled through the Reading box and fell kindly for Wes Hoolahan who calmly dinked the ball over Al Habsi from six yards out. 2-0.
It it went from bad to worse when a speculative right-footed strike from Alex Pritchard picked out the top right corner from 22 yards out. Nothing Al Habsi could do about a strike of that quality.
And it was four as Norwich kept coming. A low drive from the unplayable Oliveira was saved by Al Habsi low to his right but Russell Martin was on hand this time to toe the ball goalwards. It took a wicked deflection off a Royals leg and dribbled past a helpless Al Habsi for 4-0.
The fifth came soon after, Pritchard got in front of his man and simply took aim from inside the D on the edge of the box. Al Habsi could only watch as the ball whistled into the bottom corner once more.
Reading found the net next in what was becoming a farcical first half. Swift's cross from the left was met by Lewis Grabban at the near post and a superb reaction save from Ruddy parried the former City man's effort. But Kermorgant followed it up and passed the ball home to pull one back.
Second later, Norwich made it six though. Hoolahan somehow stumbled his way into the box and stabbed the ball home from a couple of yards out after Al Habsi had got a hand to the ball to seemingly halt the attack.
Kermorgant thundered a header well over the crossbar as an unbelievable first half neared and end. But the game was over and Reading had to focus on damage limitation going into the dressing rooms.
Half-time: Norwich 6-1 Reading
Reading began the second half well. McCleary had a shot at goal early on only for thew offside flag to give Norwich a free kick before Ruddy could be troubled. Moments later, McCleary was found in space down the right and his threaded ball into the run of Swift was cut out by Ruddy's smothering save.
John Swift then took aim from 30 yards out and it took a fingertip from Ruddy to push the ball over the crossbar. But at the other end, City threatened more and Pritchard dragged a shot wide when played in down the right side of the box.
Substitute Tennai Watson did brilliantly to prevent Jacob Murphy tapping home an Oliveira shot that had fizzed across the Royals box. And with 20 minutes left, Swift scuttled across the City box and arrowed over with his left foot.
Oliveira should have completed his brace but he rolled a shot wide of the bottom left corner with the outside of his right boot. And two fine saves from Al Habsi prevented Norwich adding to the scoreline - first he saved from Murphy with a scrambling save on his goalline and then he parried a header from Timm Klose.
The crossbar came to Reading's rescue next, a glancing header from Dijks crashing off the goal frame and to safety and Hoolahan went in search of his hat-trick but drilled high over the bar.
Cameron Jerome scrapped home an 89th minute goal to cap off a commanding home display by City. It had been a first half to forget and a bad day at the office all round for the Royals. Reading, however, remain in fourth with five games to play.
Full-time: Norwich 7-1 Reading
Norwich City: Ruddy, Dijks, Martin (c), Pritchard (Josh Murphy 81), Klose, Howson, Hoolahan (Naismith 87), Tettey, Jacob Murphy, Pinto, Oliveira (Jerome 87).
Subs: McGovern, Whittaker, Wildschut, Bennett.
Yellow: Jacob Murphy
Goals: Oliveira pen (3), Hoolahan (15, 41), Pritchard (26, 35), Martin (30), Jerome (89).
Reading: Al-Habsi, Gunter (c), Blackett (Watson 61), Moore, Oxford, Kelly, Mutch (Obita 52), Swift (Gravenberch 80), McCleary, Grabban, Kermorgant.
Subs: Jaakkola, Williams, Popa, Mendes.
Goals: Kermorgant (39)