Monday night's 1-0 defeat at the Etihad, courtesy of Vincent Kompany's header, left the Red Devils second behind City, level on points but eight goals back from their rivals.
Former United defender Neville told Sky Sports: "I know - I've been in that changing room for 20 years - it's his worst nightmare.
"Losing a championship on goal difference is what he always talks about, every single season.
"In January, in February, in March, whatever month it is going for a championship, he will say if you're 1-0, 2-0 up, 'score three, score four'.
"You never know whether it's going to get to goal difference.
"And you look at games like Fulham at home 1-0, QPR at home 2-0, and it's these sort of things you look back at during a season an think, 'we could we have done more'.
"It is his worst nightmare."
After the match, City boss Roberto Mancini maintained his stance that United remain favourites because of the sides' respective remaining fixtures. The bookies disagree.
City go to Newcastle next weekend and host QPR on the final day of the season, while United welcome Swansea to Old Trafford before heading to Sunderland.
Neville said: "For Manchester City, they have one game. I think the QPR game at home, with respect to them, the way they played on Sunday against Chelsea, they're a non-entity.
"It's that game away at Newcastle. Win one match to win a championship and now all the pressure's back on City."