City had been gifted an early lead when Villa goalkeeper Brad Guzan blundered and Sergio Aguero pounced, and doubled their advantage after 66 minutes through an Aleksandar Kolarov free-kick.
But Villa hit back through Tom Cleverley and Carlos Sanchez and could even have won it were it not for a dubious offside flag against Christian Benteke before he was tripped in the penalty box by Joe Hart.
To make mattes worse for Villa substitute Fernandinho scored an 89th minute winner to seal a 3-2 home win to leave a frustrated Sherwood bemoaning the controversial decisions.
“Coming here and playing like we did (and getting nothing) is a big disappointment,” Sherwood told Sky Sports 1.
“I think we edged it, to be honest. We’re coming to the home of the champions. We controlled possession, certainly in the first period, coming on the back of a devastating start for us. We showed a lot of character, bounced back, got our goals.
“As you’ve seen, one of the decisions has cost us. It’s blatant. It’s a red card and a penalty.”
On the offside decision, he said: “They’re not hard (to get right). That’s what they get paid to do. The 18-yard box is there – there’s a straight line there to help them out.
“It’s marginal, it’s tight – it’s one that’s gone against us today.”
Villa were the first visiting team in more than six years to have more possession over 90 minutes than City on their home turf, however, and Sherwood managed to briefly look on the bright side.
“You’ve got to look for positives. The positives are we came here and were not fazed. (But) the goals we gave away – not good enough. We need to be able to defend properly. The free-kick was a real disappointment. And the defending for the corner wasn’t good enough.
“But overall it’s a good performance from us. We played well. If we play like that (for the rest of the season), we should be okay.”