The Citizens missed a great chance to retain their Premier League title favouritism by conceding on three occasions at Anfield to fall seven points behind the Reds with two games in hand.
A David Silva finish and an own-goal from Glen Johnson had City back on level terms after Raheem Sterling and Martin Skrtel goals saw the home side two goals ahead, prior to Philippe Coutinho's 78th-minute winner.
The defeat put a dampener on City's title challenge but manager Pellegrini was not throwing in the towel, especially seeing as they still have six fixtures to bridge the gap with Liverpool.
"The team played very well. We had chances to score and win the game and we didn't. Finally Liverpool won the game with a mistake," he said.
"It is not the end of the Premier League. The most important thing today is now it is not dependent what we do in the future.
"If Liverpool win their four games maybe they deserve to win the title, but we will continue fighting until the end. We have to play one of our games in hand on Wednesday."
For breaking stories and all the great banter like us on Facebook: facebook.com/tribalfootball