Instead, Mohamed Salah's 39th goal in a sensational season put Liverpool in control before Roberto Firmino's composed finish secured Liverpool's first Champions League semi-final appearance in a decade.
Guardiola was also sent to the stands by referee Antonio Miguel Mateu Lahoz just after the half-time whistle to make his feelings heard about Leroy Sane's 41st-minute effort being ruled out for offside.
Guardiola, who was sent off from the touchline during a half-time conversation with the referee, refused to let any refereeing controversy get in the way of him praising his opponents. "It is not comparable for many others, it's top", Guardiola, whose side still boast a 13-point lead at the top of the Premier League, said. "What have I just witnessed?"
"Now it is on us - whoever we get in the next round - to go and prove we can beat people in Europe as well. I told the lads to wake up because it was not good enough and I said we were sitting too deep", he said.
"But I know the referee from Spain, so i could imagine that". He is the man you look to at times when we need information [even if] it is hard to shut him off as he shouts loud.
Salah has now been involved in 50 goals in a remarkable first season with Liverpool, but he insists results are all that matters.
"In this competition the teams are so equal and the influence of refereeing decisions is so important", said the Spaniard afterwards, denying he had insulted the referee.
City's European exit capped a wretched week, which also saw them blow the chance to clinch the Premier League title on Saturday when Manchester United came from two goals down to beat their bitter rivals.
Liverpool head coach Jurgen Klopp feels the club deserves to be in the last English team in the UEFA Champions League progressing to the semi-final stage at the expense of 'the best team in the world'.
"We played for 10 months amazingly", he added. The goal for Gabriel Jesus in Anfield is a goal, it's not offside. "That's the key, it's what you have to do against these sorts of teams".
"It's hard because unfortunately the last three defeats overshadow what we have been doing all season", said the Brazilian.
"I hope they can go all the way".
Liverpool responded to win 2-1 at Etihad Stadium and 5-1 on aggregate.