City are preparing to take on Jurgen Klopp's resurgent Reds in a huge clash at the Etihad Stadium on Thursday.
Liverpool go into the game in blistering form, having won 17 and drawn three of their 20 Premier League matches so far.
It means the Merseysiders have built up a six-point lead over second-placed Tottenham, with City seven points adrift in third after a run of three defeats in their last five matches.
It’s already been suggested that defeat for Pep Guardiola’s side would end their title hopes , even with half of the campaign still to go.
Gundogan is in no doubt as the size of the match and believes containing Liverpool’s attacking trio of Mohamed Salah, Roberto Firmino and Sadio Mane will be key to City’s success.
"It's the most attractive game of the Premier League, so we want to perform well," Gundogan told German news agency SID . "Our manager's philosophy is to bring our own game on the pitch, the result will then come automatically.
"Especially after the bad results recently, as a collective we have to be more settled in defence and attack more aggressively. Sometimes we made it too easy for our opponents to get through and we left them too many open spaces.
"Against Liverpool it's an extremely exciting game and a very big challenge against their three men up front. If we can do that better [contain Salah, Firmino & Mane] then we'll win the game. Up front we always have the quality to score goals."
Gundogan also admits he has been hugely impressed with Liverpool as they seek their first league title for 28 years.
"You only have to look at their conceded goals to know that they do well defensively," he added. "They always give a lot of effort, run a lot, especially their defensive line but also the three midfielders. The three men up front sometimes can even relax a bit because of that.
"They punish mistakes in the opponent's build-up-play like hardly any other team in the world."