Guardiola’s admission came after Real Madrid eliminated City in the Round of 16 on Tuesday night.
Reflecting on the continental landscape during his post-match interview, Guardiola pointed toward North London as the new benchmark.
Guardiola claims Arsenal are best team in UCL
“We will challenge against the best team [Arsenal] in England, so far, the best team in Europe, look at the results in the Champions League group stage," Guardiola said.
“They have been the first. They have maybe lost three or four games this season."
The City manager is well aware that his own hopes for silverware now depend on taking down the Gunners in back-to-back domestic battles.
“We will have to play them [in the Carabao Cup final], after one or two weeks, we play them in the Premier League.”
Arsenal have a nine-point lead at the top and are now cruising into the Champions League quarter-finals. Arteta's men are still in the FA Cup and Carabao Cup as their quadruple chase continues.
As City lick their wounds from a brutal European exit, they now have a massive job on their hands: stopping the Gunners from pulling off a clean sweep of every major trophy on the table.