Pep Guardiola's men were dominant on their way to the Premier League title last season, but were eliminated by Liverpool in the last eight in Europe.
Gundogan, who has helped City claim seven points from their opening three league games this campaign, feels the English giants are ready to challenge for the European crown.
"In Manchester last season we had the feeling that we are ready for it. It was not enough. This year nothing has changed in this feeling.
"I believe that we are even a bit more mature. We have the potential to become Champions League winners."
Gundogan joined City in mid-2016, but a knee injury saw him sidelined for most of his first season before making his return in 2017-18.
The Germany international, 27, said he was grateful for the support he received through his injury.
"I enjoy playing at Manchester City. I'm satisfied right now and well on the way to getting back into shape," Gundogan said.
"The leaders of the club were always behind me in the difficult phase and I had complete support. I do not forget something like that."