The 41 year-old, who has fought for a world title on two occasions in the past, seemed to be comfortable in the first round as Price advanced and came out in the second with a renewed confidence.
Thompson then caught Price with a counter right hand to the side of the head as the home fighter moved in and the former Olympian lost all his senses as he crumpled to the canvas.
Referee Steve Gray had no option but to call a halt to the fight with Price wobbling on unsteady legs and Thompson was declared the winner to improve to 37-3 with his 25th knockout win.
On the undercard, Kevin Satchell successfully defended his British and Commonwealth flyweight titles, although had a slight scare along the way after suffering a bad cut in what was a gruelling victory.
The 24 year-old battled his way to retaining the belts against a game Luke Wilton to triumph on all three of the judges scorecards, which read 119-110, 119-112, 118-111 to the delight of the Liverpool boxing fans.
Wallasey’s Steve Williams failed to make a dent into Darren Hamilton’s reign as British light-welterweight champion after losing a wide points decision to the man who dethroned Ashley Theophane last year.
The 28 year-old, lost out on a Lonsdale belt for the second time as the champion from Bristol retained his title, with the judges carding 120-108, 119-109 and 118-111 all in favour of Hamilton.
Crowd favourite and former WBU and Commonwealth lightweight champion David Burke made a painful return to the ring earlier on in the night after an eight-year absence.
The 38 year-old was floored twice in the second round by seven-loss Dean Mills, with the fight eventually stopped in the last of four sessions to end any hopes of a winning comeback for the southpaw.