City lie fourth ahead of the match at the Etihad Stadium, six points worse off than the Gunners, who are five clear of second-placed Liverpool and third-spotted Chelsea with all sides having played 15 games.
When it was put to him that the fixture had the feel of a title decider to it even at this stage of the campaign, Milner said: "Yes. With the gap they have at the top, if they win or we win, things are going to look very different, so it is important we get the victory."
City boss Manuel Pellegrini has challenged his side to be league leaders by the first day of 2014, and Milner added: "There are so many games in December, and if you look at the league table going into that month, it always looks completely different when you come out of it into January.
"It is important that at that point it looks a lot better than it does now for us."
But the England international also emphasised that, while City want to move into top spot as soon as possible, ultimately the real goal is ensuring they are there when the action finishes on the final day of the season.
When it was suggested to him that, with a victory over Arsenal, the Blues would put themselves well on course to meet Pellegrini's new year's day target, Milner said: "Maybe, but I just hope we are top at the end of the season - that is the main thing. It is all that matters.
"If we can get there sooner then great, but as long as we are there in May, that is the main thing."
Milner was speaking after City's 3-2 Champions League Group D victory at Bayern Munich on Tuesday.
The Blues' performance against the defending champions was remarkable in various ways, with Pellegrini's men falling 2-0 behind within the first 12 minutes before producing a stunning comeback.
It is at home that City have really impressed this term, though, winning 10 of their 11 Etihad Stadium matches in all competitions - they lost the reverse fixture to Bayern 3-1 - and scoring 44 goals.
And Milner is optimistic they can keep that form up and defeat Arsenal.
"They are top, playing very well and are full of confidence," the 27-year-old said.
"But we have been performing very well at home.
"Hopefully we can keep that going and I'm sure if we perform like we have been at home, we will have every chance of getting the win."
Certainly City's triumph at Bayern will only add to the confidence they take into Saturday's contest.
The result in what was the two teams' concluding Group D fixture, and which they went into having both already qualified for the knockout stage, was not enough for second-placed City to leapfrog the German outfit and secure first position in the section.
That would have ensured the Blues, theoretically at least, an easier draw for the last 16 and they fell short by one goal, with a 4-2 victory for them being one of the outcomes that would have been sufficient - something Milner later admitted City, thinking that a three-goal winning margin was required, had not been aware of.
Nonetheless, they made quite a statement about their continental credentials with their display.
And Milner said: "It was massive for us for going forward in the competition.
"We are obviously going to get a tough draw in the next round.
"But we know we can beat the reigning champions on their own patch, scoring three goals, so that is a massive confidence boost and gives us massive momentum for the next round."
The draw for the last 16 takes place on Monday and City, as they have finished as runners-up in their pool, are guaranteed to face one of the winners of the other groups and play the second leg of the tie away from home.