Guardiola, who guided Barcelona to two Champions League successes before taking over at the reigning European champions in the summer, is impressed by the strides City have made in recent years.
City's last two Champions League challenges have ended at the group stage but they are back with renewed determination under new manager Manuel Pellegrini this season.
Bayern provide a stern early test of their credentials as they meet in an eagerly-anticipated Group D fixture at the Etihad Stadium on Wednesday.
Guardiola said: "Manchester City are one of the biggest clubs in Europe. I think they have made big steps forward.
"The last two seasons they didn't get through first stage but I am 100 per cent confident they will get through to the next round.
"My impression is if they qualify, Manchester City will be one of the toughest teams in the next round.
"The same happened with Borussia Dortmund last season.
"They qualified for the next round and went on to the final."
Bayern's visit to Eastlands will bring Guardiola up against Pellegrini, an old rival from their days in the Spanish league.
Pellegrini, formerly of Real Madrid, Malaga and Villarreal, is yet to get the better of Guardiola having failed to win any of their eight encounters.
Guardiola is reading little into that and is full of admiration for City's new Chilean boss.
Guardiola said: "I am really impressed with Manuel because I would like to be like him.
"No matter which club or team he is training, his teams play in the same way.
"His fingers, his footsteps, his trademark is always there in his teams. It has happened in Villarreal, Malaga, Real Madrid.
"If I beat them all the time it was because I was training one of the best teams in the world, one of the best teams in the history of Barcelona. Sometimes it was easy for me."
Bayern winger Arjen Robben, who scored the goal that clinched last season's Champions League in the final at Wembley in May, also expects City, with their vast resources, to come good.
The former Chelsea star said: "They are not the only club with a lot of money in Europe.
"You can't just buy quality, you have to build a team. Having enough good players will give you a chance of hitting the jackpot at some point.
"They have the potential to progress well this time."
Ex-City player Jerome Boateng, who is set to line up against his former team-mates at Eastlands, is also impressed by the progress since he left in 2011.
The 25-year-old said: "They didn't have easy groups in the past.
"It's a matter of building the right team and integrating the right players but I think they are on the right path and doing well at the moment."
Bayern are joint top of the Bundesliga with an unbeaten record after seven games but that has not stopped Guardiola from receiving some criticism over the way his team has played.
Guardiola argues that he has been hampered by midfield injuries and has needed to utilise one of the world's best full-backs, Philipp Lahm, in a central position in front of the back four.
Guardiola said: "I am happy, working well with the whole squad. We are moving forward now and I hope we see that over the next few weeks."
Guardiola left Barca in the summer of 2012 to take a year out of the game.
During his time off he was linked with a host of clubs, including City, before deciding to end his sabbatical with Bayern.
Speaking at the pre-match conference, the 42-year-old would not be drawn on whether he might have been interested in City or another job in England.
He said: "I am a lucky guy, I am at one of the best clubs in the world. It is a dream come true to be coach of Bayern Munich."
Guardiola has also faced criticism from his former Barcelona striker Zlatan Ibrahimovic over the way he was treated at the Nou Camp.
He did not want respond but a Bayern spokesman said: "He is one of the greatest coaches, known worldwide as a gentleman.
"There are two terms we all need to follow and that is respect and fairness. It would be good if everyone followed that."