Defending champions City, who beat Southampton 3-1 on Sunday, go into Thursday's home game against Liverpool seven points adrift of the Reds.

"The problem is the other team is fantastic," Guardiola told BBC Sport.

"[Liverpool are] maybe the best team in Europe or the world right now and in top form."

While City have suffered defeats against Chelsea, Crystal Palace and Leicester in December, Liverpool have won all seven league games they have played.

They ended 2018 in style, beating Arsenal 5-1 at Anfield to briefly go 10 points clear of City.

Speaking about Liverpool's ability, Guardiola added: "You have to accept it. All we can do is do our job, play our games and after that we will see."

In addition to their dominant position in the league, Liverpool have a recent edge over City because they knocked the Blues out of the Champions League in the quarter-finals last season.

If the Reds were to win on Thursday, they would restore their 10-point cushion and become heavy favourites to win a first league title since 1990.

City captain Vincent Kompany said the game against the league leaders is the type of match "you live for".

"Our pride has been hurt over recent weeks but we have everything to play for. It depends on us," Kompany told Sky Sports.

"Every living soul that comes into the stadium has to be ready to fight and give it to them [Liverpool], and we should be able to pull everything out of the locker for that game."