Roberto Mancini's men suffered their first loss of the season with a 2-1 reverse at Chelsea, a setback which slashed City's lead at the top to two points and removed their aura of invincibility.
By the time City kick off against the Gunners in the weekend's showpiece fixture, they may already have been knocked off top spot if second placed Manchester United manage to beat Queens Park Rangers at Loftus Road.
Nevertheless Mancini is admant that his expensively assembled side have the character to shrug off their defeat at Stamford Bridge, a game they had led 1-0 before Chelsea struck back to blow the title race wide open.
"I think that at these moments we should be strong," said Mancini. "After one defeat, we can improve - we know what we can do, and in this moment we can become stronger.
"We have never had a problem bouncing back after a defeat, and I am sure we will do it again.
"We play Arsenal on Sunday and at the moment Arsenal are playing very well. It will be difficult but we need to start again. What is important is that we start to win again."
City captain Vincent Kompany said the defeat at Chelsea had brought the club's first team closer together.
"Losing at Chelsea has made us feel more hungry," said Kompany. "We want to play football again as quickly as possible. That is the kind of team we are.
"We don?t like to lose. We still feel for a team playing away at Chelsea we showed a lot of courage, especially in the first-half."
City's Arsenal old boy Gael Clichy, sent off against Chelsea, is suspended for the clash with his former club.
However Samir Nasri, who departed Arsenal for City last summer amid acrimony, could feature for the Manchester side.
Arsenal head into the fixture chasing their ninth league victory in 10 games, a two-month unbeaten streak which has left them within touching of the top four, just two points behind rivals Spurs.
"Nobody could have predicted that at the start of December we would be where we are now," Arsenal boss Arsene Wenger said.
"We have to keep going because we are still very far away. We'll try, we?ll try very hard. We have a big game on Sunday, that will be a big test for us."
QPR meanwhile are scenting an upset as they face Manchester United with the champions battling a mounting injury crisis.
Darren Fletcher became the latest name added to United's sick list this week, joining long-term absentees such as Nemanja Vidic and Javier Hernandez.
QPR winger Shaun Wright-Phillips said promoted Rangers were primed to repeat their 1-0 win over Chelsea against United.
"It?s a massive game to play in and we are looking forward to it and hopefully we can do the same thing we did to Chelsea and move further up the table again," he said.
"I think we have done really well against the big clubs and I think we have got to keep doing that on a consistent basis and I think as a footballer the hardest point is consistently performing as a team."
Sunday: Aston Villa v Liverpool (1405), Man City v Arsenal (1610), QPR v Manchester United (1200), Tottenham v Sunderland (1500).