City, who have already secured the title, are 17 points clear of Klopp's men, but Pep Guardiola's side have struggled against Liverpool.
In four meetings this campaign, City have won just one outing, including suffering a Champions League quarter-final exit.
"Of course I don't fear the challenge. This year, if City had played a normal season, which they didn't do, then it would have been really close until the end because we are now all close together," the German told reporters.
"United are four points ahead of us, Tottenham are two points behind or whatever. It's a real fight for all positions.
"All big six pretty much delivered this year but City delivered the best. It's difficult to deal with success, as it is difficult to deal with other things in football, but I'm pretty sure they will be strong again.
"It doesn't make life easier but it's not impossible to step a little bit higher."
Klopp believes he knows just how his team can close the gap to City, calling for his side to be more ruthless.
"The gap between us and City didn't happen in the games against them, it happened in the other games," he said.
"A few points we missed were kind of unlucky and a few points were our own responsibility and we have to work on that."