City turned the tables on United for the first time in a generation last season as they beat their neighbours twice en route to the Barclays Premier League title.
Yet while Mancini feels that has helped overcome a psychological hurdle after years of toil against United, he feels the Red Devils still have an on-field edge as they battle again for the crown.
United lead the table by three points from City ahead of the clubs' first meeting of the season at the Etihad Stadium on Sunday.
Mancini said: "They are better than us, I believe this. They have a strong mentality, they can play in two strong competitions like the Premier League and Champions League.
"Probably we don't have this strength in this moment. We need to work for this.
"But now Manchester United-Manchester City is a different game. Maybe two or three years ago we feared United but now it is changed."
United have won 12 Premier League titles under Sir Alex Ferguson and because of that history Mancini feels they must still be regarded as title favourites.
Mancini often compared his team unfavourably to United last season - and even wrote off their title chances at one point - and denies this is a tactic to motivate his players.
He said: "We can't change the history. We are here (for) only two years, playing together, and they are used to playing this game for the title race for 20 years.
"This is normal when you play against a team that won everything in the last 15 years.
"You can't change this in two or three years and you need more time. For this reason, they have a small advantage.
"In this moment United are favourites but the season is long."
United responded to City's title victory by securing the transfer scoop of the summer in Robin van Persie.
The prolific Dutchman, who scored 37 goals for Arsenal last season, has made a huge impact since his £27million summer move to Old Trafford and scored 13 goals already.
The 29-year-old had been a reported target for City but Mancini, who has recently bemoaned his own strikers' lack of output, is not dwelling on what might have been.
He said: "In the market everything can happen. You think you can buy a player but then it is impossible because this player has taken another decision. Now we can't change this.
"We have four strikers that last year scored a lot of goals. I think we need to work.
"In this moment we don't score a lot of goals but I am sure if we continue to work we can improve."
After being linked with Van Persie and a number of other high-profile players, Mancini concedes his summer transfer activity was underwhelming.
Jack Rodwell was the only new signing before Javi Garcia, Maicon, Matija Nastasic, Scott Sinclair and Richard Wright arrived on deadline day.
With new chief executive Ferran Soriano and director of football Txiki Begiristain now firmly in place, Mancini expects the situation to improve in future transfer windows.
He said: "It is difficult to say this but I made some mistakes and our players made some mistakes in the Champions League, we probably could have done better in the summer.
"But now this is in the past, we can do nothing. Only to work hard, to improve our performance.
"The market is always difficult. We were also in a difficult moment, we changed CEO.
"If you are not strong enough, you can have problems in the market but now we can work.
"We have time for next year to work well and improve our team. Our problem is this, to improve our strikers."
City remain unbeaten in their title defence but after 15 games have scored just 28 goals, 21 fewer than they had at the same stage last season.
The striking quartet of Carlos Tevez, Sergio Aguero, Edin Dzeko and Mario Balotelli have scored 19 between them but Mancini wants more.
Mancini, who hopes playmaker David Silva can recover from a hamstring injury, said: "Usually when you have four (strikers) you can have two or three that don't score but one continues to score.
"At this moment we have four players that can't score and were unlucky.
"We need to work more but I am sure we can change Sunday and after everything we will be okay. We need to continue to work more."