The former Old Trafford right-back believes that either Sir Alex Ferguson's or Roberto Mancini's team will be champions, but Sunday's derby clash will not necessarily be decisive
Roberto Mancini's side beat Sir Alex Ferguson's men twice last season and won the title on goal difference - a factor the Old Trafford boss attributed in part to being beaten by City 6-1 at home, meaning a 10-goal swing.
However, while the champions could regain top spot with a win against the Red Devils on Sunday, the England coach suggested the twists and turns of last season have shown the race may go down to the wire again.
"The title race is between these two. I don't see any other team with the mental strength, durability and character that these clubs possess," he wrote in the Daily Mail.
"Make no mistake, these are the best teams in England right now. They haven't been at their best yet and if there's one thing I would want to see on Sunday it's a step up in quality.
"My gut feeling assessing the Manchester derby on Sunday is to say that this is just another three points in a long season," he added. "In my years of fighting for titles and having watched several races unfold, Sunday's result will not have a pivotal influence on the eventual outcome.
"It is far too early to judge and there are too many twists and turns to come."
Neville suggested it is the mentality of the Manchester clubs which means this result will not necessarily decide the title: "Do I think that if United win, City will have suffered a crucial blow in retaining their title? No.
"And if City win, does that mean they will go on and win the League? No."
He continued: "The reason why it's impossible to call between these two is because of that mentality they now show. Even when City have suffered disappointments in the Champions League, they have been able to bounce back in the Premier League.
"Both of these sides are capable of withstanding a setback on Sunday and coming back to win the title. But at the same time, the race is likely to be so close that this result could be significant."
A big defeat for either side could have a crucial impact on goal difference, which Neville insists Sir Alex will be reminding his players about, considering the way City won the title last season.
"Although we can overstate the importance of individual games, when it came down to it, the goal difference City accrued in October last year at Old Trafford proved crucial.
"And those United players will receive another reminder from Sir Alex that, were they to lose at the Etihad Stadium, they would again be knocked off the top spot by City - on goal difference. And that's why this game has become the most important fixture in English football," he added.