Robert Earnshaw notched a hat-trick as Forest extended their unbeaten run to 11 matches and moved above Leicester into third spot with an emphatic win.
The 28-year-old Welsh international hit two before the break and fired into the top corner to seal his treble in style.
Paul Anderson then curled in superbly from an acute angle before the hour, before Martyn Waghorn's consolation penalty after a handball by Wes Morgan.
Substitute Dele Adebola soon struck as Forest hit a ninth goal in two games.
Earnshaw is something of a hat-trick specialist, having in 2005 become the first man to score a treble in all four English divisions, plus the FA Cup, League Cup and international level.
His first goal came after a one-two with Dexter Blackstock, who then found him again from the right-hand side and Earnshaw shot into the bottom corner from 12 yards.
The second arrived after Chris Cohen's shot into a crowded penalty area fell to Earnshaw and he displayed admirable composure in lifting the ball over Chris Weale from eight yards out.
Leicester began the second half in spirited manner but were soon three down four minutes after the re-start when a wayward pass from Jack Hobbs was intercepted by Earnshaw, who smashed in from the edge of the area.
On-loan Sunderland striker Waghorn got the Foxes on the scoresheet from the spot when Morgan handled a Richie Wellens shot, but Forest continued to create more chances.
Adebola headed over from six yards and Earnshaw shot wide before the fifth goal was scored in the 77th minute.
Substitute Garath McCleary collected a loose ball and advanced through to the edge of the area, Weale parried his low shot but Adebola was on hand to bury the rebound.
Nottingham Forest manager Billy Davies told BBC Radio Nottingham: "I'm absolutely delighted with the performance and with the three points."
"We played well but its only December. We'll keep reminding everyone of that."
"I don't think we're ready (for promotion.) I'll keep saying that but we're certainly a team with excellent potential and we're a team making great strides forward."
Leicester boss Nigel Pearson: "It was awful. We didn't start the game well and we didn't show any discipline. When you are facing local derbies it is about making sure you are focused and up for it but we lacked that and it is not a very nice thing to have to say.
"It was the worst performance and worst result since I have been manager, but what I will say is that, although it doesn't make it any easier to stomach, it doesn't happen very often.
"I am the manager and I take the responsibility but now it is all about how we respond. When something like this happens to you it's about getting back to basics and we'll attempt to do that on Tuesday." [at home to Bristol City]
90:00+4:06 The referee blows his whistle to end the game.
90:00+0:03 Steve Howard is flagged offside by the assistant referee. Lee Camp takes the free kick.
86:48 Martyn Waghorn is adjudged to have handled the ball. Free kick taken by Lee Camp.
85:37 Handball decision goes against Garath McCleary. Free kick taken by Lloyd Dyer.
81:56 Wayne Brown restarts play with the free kick.
81:56 Booking Chris Cohen receives a yellow card.
81:32 Chris Cohen gives away a free kick for an unfair challenge on Richie Wellens.
80:09 Unfair challenge on Nathan Tyson by Michael Morrison results in a free kick. The ball is swung over by Chris Cohen, Dele Adebola
has a headed effort from close in and clears the bar.
78:07 Garath McCleary produces a right-footed shot from just outside the penalty area that goes harmlessly over the target.
76:36 Free kick awarded for an unfair challenge on Steve Howard by Wes Morgan. Martyn Waghorn fires a strike on goal direct from
the free kick.
76:04 Assist on the goal came from Garath McCleary.
76:04 GOAL - Dele Adebola:Nottm Forest 5 - 1 Leicester Goal scored by Dele Adebola from deep inside the penalty area to the bottom right corner of the goal. Nottm Forest 5-1 Leicester.
75:32 Garath McCleary takes a shot. Save by Chris Weale.
74:24 Effort on goal by Matt Oakley from just inside the penalty area goes over the target.
73:57 Richie Wellens delivers the ball, Chris Gunter gets a block in.
72:48 Robert Earnshaw produces a right-footed shot from deep inside the penalty box which goes wide of the right-hand upright.
72:07 Martyn Waghorn challenges Wes Morgan unfairly and gives away a free kick. Lee Camp takes the free kick.
71:22 Dele Adebola has a header from inside the six-yard box and clears the crossbar.
69:51 Substitution Garath McCleary comes on in place of Paul Anderson.
67:50 Lloyd Dyer delivers the ball, save by Lee Camp.
67:27 Lloyd Dyer takes a shot. Blocked by Wes Morgan.
67:00 Dele Adebola crosses the ball, Chris Weale makes a save.
65:22 Lee Camp takes the free kick.
65:22 Substitution Dele Adebola on for Dexter Blackstock.
65:22 Martyn Waghorn is ruled offside.
63:45 GOAL - Martyn Waghorn:Nottm Forest 4 - 1 Leicester Penalty taken left-footed by Martyn Waghorn and scored. Nottm Forest 4-1 Leicester.
63:13 Handball decision goes against Wes Morgan.
63:01 Richie Wellens takes a shot. Wes Morgan gets a block in.
61:47 Free kick crossed right-footed by Matt Oakley, Wes Morgan makes a clearance.
61:47 Substitution Robbie Neilson leaves the field to be replaced by Michael Morrison.
61:47 Kelvin Wilson gives away a free kick for an unfair challenge on Steve Howard.
60:30 Martyn Waghorn is flagged offside by the assistant referee. Free kick taken by Lee Camp.
58:34 Free kick taken by Chris Cohen.
58:34 Substitution Nathan Tyson on for Radoslaw Majewski.
58:34 Booking Steve Howard receives a yellow card for unsporting behaviour.
58:30 The referee penalises Steve Howard for handball.
58:08 Foul by Richie Wellens on Wes Morgan, free kick awarded. Free kick taken by Paul McKenna.
57:31 Inswinging corner taken by Radoslaw Majewski from the left by-line played to the near post, Matt Oakley manages to make a
57:27 Centre by Paul Anderson, clearance by Wayne Brown.
56:41 Jack Hobbs produces a cross.
56:28 Chris Cohen gives away a free kick for an unfair challenge on Lloyd Dyer. Direct free kick taken by Richie Wellens.
55:58 The ball is swung over by Nicky Shorey, Dexter Blackstock takes a shot. Save by Chris Weale.
55:33 Robert Earnshaw is ruled offside. Indirect free kick taken by Jack Hobbs.
54:23 The ball is sent over by Richie Wellens.
53:01 Dexter Blackstock provided the assist for the goal.
53:01 GOAL - Paul Anderson:Nottm Forest 4 - 0 Leicester A goal is scored by Paul Anderson from just inside the penalty area to the bottom right corner of the goal. Nottm Forest 4-0
49:49 Kelvin Wilson concedes a free kick for a foul on Martyn Waghorn. Matt Oakley crosses the ball from the free kick right-footed
from right channel, Kelvin Wilson manages to make a clearance.
48:09 GOAL - Robert Earnshaw:Nottm Forest 3 - 0 Leicester Robert Earnshaw gets on the score sheet with a goal from the edge of the penalty box to the top right corner of the goal.
Nottm Forest 3-0 Leicester.
47:33 Lloyd Dyer delivers the ball, Kelvin Wilson manages to make a clearance.
45:22 Corner taken right-footed by Matt Oakley from the left by-line, clearance by Nicky Shorey.
45:01 The second half begins.
45:00+2:37 The match has reached half-time.
44:40 Shot on goal by Robert Earnshaw from long range goes harmlessly over the target.
44:01 Free kick awarded for a foul by Dexter Blackstock on Wayne Brown. Wayne Brown takes the free kick.
43:03 Corner taken right-footed by Radoslaw Majewski, Wayne Brown makes a clearance.
42:53 The ball is sent over by Nicky Shorey, clearance made by Wayne Brown.
41:13 Steve Howard gives away a free kick for an unfair challenge on Wes Morgan. Kelvin Wilson takes the free kick.
36:49 Chris Cohen delivers the ball.
35:05 Substitution Lloyd Dyer is brought on as a substitute for Matt Fryatt.
34:30 The ball is delivered by Chris Gunter, clearance by Richie Wellens.
34:11 The ball is swung over by Bruno Berner, clearance made by Kelvin Wilson.
31:55 The assist for the goal came from Chris Cohen.
31:55 GOAL - Robert Earnshaw:Nottm Forest 2 - 0 Leicester Robert Earnshaw scores a goal from inside the six-yard box to the bottom right corner of the goal. Nottm Forest 2-0 Leicester.
31:51 Chris Cohen takes a shot. Jack Hobbs gets a block in.
31:19 Corner taken right-footed by Radoslaw Majewski.
31:05 Free kick awarded for a foul by Richie Wellens on Paul McKenna. Paul McKenna takes the direct free kick.
27:46 Substitution Steve Howard on for Yann Kermorgant.
24:53 Yann Kermorgant takes a shot. Save by Lee Camp.
22:15 Corner taken right-footed by Radoslaw Majewski from the left by-line, clearance by Robbie Neilson.
21:55 Paul Anderson takes a shot. Save by Chris Weale.
21:27 Robert Earnshaw takes a shot. Save made by Chris Weale.
20:31 Unfair challenge on Paul Anderson by Matt Fryatt results in a free kick. Free kick taken by Kelvin Wilson.
18:48 Radoslaw Majewski takes the outswinging corner, Robert Earnshaw takes a shot. Jack Hobbs gets a block in.
16:27 Martyn Waghorn challenges Wes Morgan unfairly and gives away a free kick. Lee Camp restarts play with the free kick.
13:45 A cross is delivered by Nicky Shorey, Jack Hobbs makes a clearance.
13:36 Chris Gunter sends in a cross.
11:50 Dexter Blackstock provided the assist for the goal.
11:50 GOAL - Robert Earnshaw:Nottm Forest 1 - 0 Leicester Goal scored by Robert Earnshaw from inside the box to the bottom left corner of the goal. Nottm Forest 1-0 Leicester.
11:32 Chris Cohen crosses the ball, clearance by Wayne Brown.
9:25 Jack Hobbs fouled by Dexter Blackstock, the ref awards a free kick. Direct free kick taken by Wayne Brown.
8:45 The assistant referee flags for offside against Martyn Waghorn. Lee Camp takes the indirect free kick.
7:08 Unfair challenge on Radoslaw Majewski by Yann Kermorgant results in a free kick. Radoslaw Majewski delivers the ball from
the free kick right-footed from left wing, save made by Chris Weale.
6:38 Paul Anderson fouled by Yann Kermorgant, the ref awards a free kick. Nicky Shorey takes the free kick.
5:38 Yann Kermorgant delivers the ball, Lee Camp makes a save.
3:33 Free kick awarded for a foul by Martyn Waghorn on Wes Morgan. Chris Gunter takes the direct free kick.
0:00 The match gets underway.
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