Spurs triumphed in the quarter-final first leg at their new Tottenham Hotspur Stadium as a second-half strike from Heung-Min Son proved enough for the hosts to see off Pep Guardiola's men.
It means that City have now lost all five of their European matches against English opposition, with the most recent, prior to Tuesday's defeat to Tottenham, coming in last season's competition against Liverpool.
Guardiola's side ultimately paid the price for Sergio Aguero's missed penalty early on, with Hugo Lloris saving to his left to keep out the spot-kick that had been awarded by VAR.
And Gundogan feels the game could have turned out differently had the Argentine buried the penalty, insisting that City were nervous and that they consistently made the wrong decisions in the game.
"We were not brave enough in the game, there were many simple mistakes," he told SportBild. "I have the feeling that we are nervous in important Champions League games. We have always made the wrong decisions.
"In such games, we always want to do something special because it means: Champions League semi-finals. Sometimes, less is more.
"After the missed penalty came the break. Such negative experiences always throw us back too much. If we put the penalty in, we would have taken Tottenham apart. That’s how we got out of the game.
"That must not happen to a big team. That’s why we’re not there yet."
City will have the chance to overturn the first-leg deficit when they contest the return meeting on April 17.
As for Gundogan, the former Borussia Dortmund midfielder faces an uncertain future at the Etihad Stadium despite having been an integral member of Guardiola's first-team squad this season.
The 28-year-old, who has played 42 games in all competitions for City in 2018-19, is out of contract in 2020 but, as revealed by Goal, has put talks over a renewal on hold.
Sources close to the Germany international say that he is unconvinced that he will be a regular starter at City beyond the summer and is thus reluctant to commit to a new deal.