The 28-year-old was the first player Guardiola signed when he arrived at the Etihad in 2016 and after missing most of his first season through injury, has become a consistent performer for City.
Though the midfielder often operates in the shadows of Kevin De Bruyne and Sergio Aguero, Gundogan was singled out for praise after guiding Guardiola's side to a routine victory.
Unlucky not to have scored on Tuesday after hitting the crossbar, the German completed the second-most passes and recoveries, with City's coach in awe of Gundogan's talent.
“You cannot believe how good he is,” Guardiola said post-match.
“He is an exceptional player. He can play in different positions, with his work ethic. I missed him a lot in our first year here when after a few months an ACL ruled him out for more than six months.
“He is exceptional. He is one of the best signings in this club’s history.”
Despite boasting 81 per cent of possession against Dinamo, City struggled to break down their Croatian opponents and ended the match with 20 shots but only six on target.
Guardiola's side ultimately opened the scoring in 66th minute after a Riyad Mahrez cross was bundled home by Raheem Sterling with the Citizen's coach impressed by Dinamo's determined performance.
"We believe when you attack inside and put a ball wide and people arrive for the cross, that’s the best way to score a goal," Guardiola said.
"It was really nice, but they defended so well. Even for the goal the defender was there. They were so good. I didn’t expect them to play so deep, because they didn’t have a shot on target, apart from one or two set pieces.
"But what they did in that part of the pitch was so good. They won duels and anticipated all the time. They deserve a lot of credit. That’s why it was an incredible battle."