The Turkish midfielder returned after being absent since October with a knee injury has revealed that spirits have been hit by Gareth Barry's controversial last-gasp winner
The Premier League's bottom club had defended manfully and looked set to return to Berkshire with a deserved point from the home of the champions only to fall foul of Barry's hotly-contested winner, a goal that angered manager Brian McDermott, sentiments that were echoed by the Turkish midfielder.
"We're gutted," Karacan told the official club website.
"The boys are devastated in there. We just don't seem to get the decisions when we need them.
"The boys have been unbelievable, we all worked so hard - and yet we defend for our lives for 90 minutes and they go and get one in injury time even though everyone can see it's a blatant foul.
"You look at the replays and he's all over Shorey. Nine times out of 10 it's a foul - but it's not gone for us."
However, the 23-year-old went on to claim that his side would take heart and confidence from their efforts at the Etihad Stadium. The battle against the drop sees them bottom at Christmas with only nine points to their name, six from safety.
"That's the Premier League for you - it's tough," he continued.
"Sometimes you don't get those decisions, but it's happened to us a few times now this season.
"Every player gave everything - we all put our bodies on the line. It's been drummed into me from a young age to never give up - and that's the mentality that boys here have got.
"People are writing us off day in, day out, no-one is giving us a chance in hell - but you can't take notice of it. The fans were fantastic today and, as players, we look around our dressing room and we have faith in each other.
"Everyone loves one another in that dressing room and the gaffer's been brilliant for us. We showed today how much quality we've got in the side and how much we want to stay in this league."
Karacan was making his first appearance for the Royals since suffering a knee injury in the 1-0 defeat at Liverpool in October and revealed he was delighted to just be playing football again after such a long lay-off.
"Being injured is the worst thing about football," he said. "In the last six or seven months I've only played about 10 or 11 games.
"And I live for football. Every day as a little kid I wanted to be a footballer and to have that taken away from you for such a long period of time, it kills you.
"So to be back out there today, playing at the Etihad Stadium against Manchester City - it was brilliant for myself."