Leroy Sane's fine low finish inflicted a first defeat of the league season on Jurgen Klopp's visitors and kept the defending champions in touch.
"We knew that if we won we would be in contention to fight for the Premier League, if we lose it is over," Guardiola said.
"I don't remember a league so tough."
He added: "There are so many huge contenders fighting for the title. It is closer, every game is a final."
Liverpool would have held a 10-point lead over City had they won at Etihad Stadium on Thursday but Sergio Aguero's 250th career league goal put the hosts ahead.
Roberto Firmino levelled with a diving header in the second half but Sane's goal cut the lead to just four points with 51 to play for.
"They are leaders, it is four points but we have reduced the gap," Guardiola said.
"I respect what Tottenham are doing, in the last games Manchester United are coming back, and of course Chelsea and Arsenal with new managers.
"Jurgen Klopp will not agree but for the Premier League it is a good result."
Guardiola reserved special praise for midfielder Bernardo Silva, who created the opener for Aguero and covered more distance - 12.93km - than any other player on the pitch. City say that no player has ran further in a Premier League game this season.
"He did everything," Guardiola said. "He is the smallest one but he shows us that to play football, you don't have to be tall or more physical.
"He is incredible. I haven't seen a performance like that in a while. It was clean and clever. Against Virgil van Dijk, he was comfortable.
"The game was a real game for both sides. We beat an incredible team. We were outstanding from the first minute.
"We are happy for this victory to reduce the gap. Everything is open." SHARE THIS STORY USING ANY OF THE BUTTON BELOW ⬇ PLACE YOUR TEXT ADVERT BELOW ⬇⬇⬇