City squandered a 3-0 lead against Feyenoord in the Champions League on Tuesday -- following five consecutive defeats in all competitions.
For the first time in what was the 942nd game of his managerial career, manager Pep Guardiola saw his side fail to win a match after leading by three goals.
City have won the past four Premier League titles but are already eight points behind Arne Slot's Liverpool following three straight defeats in the English top flight.
Guardiola conceded City's title defence would realistically be over should they lose at Anfield after last week's 4-0 humbling by Tottenham.
Germany international Gundogan agreed with his manager's assessment following the Feyenoord defeat.
"To stay in the title race, probably yes, (it's a game City can't afford to lose), because 11 points would be a huge gap," said the midfield veteran.
"Anfield is always tough, no matter the situation. We've struggled in recent years going there and we know Liverpool are a great team full of confidence right now.
"It's going to be as tough as it is possible to be but that sums up the situation right now. It seems we have to go through this season the toughest way possible."
City appeared to be back on track when leading 3-0 against Feyenoord, thanks to two goals from Erling Haaland either side of a deflected Gundogan effort.
But two errors from Josko Gvardiol late in the game allowed Feyenoord back into the game before an Ederson blunder led to a last-gasp David Hancko equaliser.
Gundogan, the 2022-23 treble-winning captain who rejoined the club in August after a short spell at Barcelona, admitted the nature of the draw made it feel like a defeat.
The 34-year-old said: "The sensation right now is big disappointment but football is football and football sometimes creates incredible moments and difficult moments that you have to face."
