The Premier League title favourites were 2/1 to beat the La Liga leaders at the Etihad Stadium on Tuesday and confirmed their status as outsiders for the game after they went down to second-half goals from Lionel Messi and Dani Alves following a red card for Martin Demichelis.
Barcelona have now been cut from 9/2 to 7/2 second favourites to lift the trophy with Bayern Munich 9/4 market leaders.
Head of Football Trading Paul Wiggins said: "The betting industry leaned towards Barca before kick-off with City drifting out from a starting price of 6/4 to 2/1 but we saw the majority of the money on City as our punters genuinely believed they had a chance.
"However, their odds have now drifted significantly across the markets and we doubt we'll even see much interest for them to progress, despite arguably matching their visitors in the first half.
"Arsenal now face an even tougher task in halting reigning champions Bayern Munich, who have attracted twice as much support as their hosts at the Emirates despite being odds-on to establish a first-leg lead."
Zlatan Ibrahimovic scored twice in PSG's 4-0 rout of Bayer Leverkusen and the Swede is now 13/8 to be the top goalscorer in the competition this season.
Saturday February 22
12:45 Chelsea v Everton
15:00 Arsenal v Sunderland
15:00 Cardiff City v Hull City
15:00 Manchester City v Stoke City
15:00 West Brom v Fulham
15:00 West Ham United v Southampton
17:30 Crystal Palace v Man Utd
Sunday February 23
13:30 Liverpool v Swansea City
13:30 Newcastle United v Aston Villa
16:00 Norwich City v Tottenham