The 26-year-old put in a match-winning display against Everton on Saturday.
And Guardiola thinks Mahrez lifting a major trophy with Algeria has helped his confidence.
"All this season he is playing outstanding," said the Spaniard. "One year he was the best player in the league so he is an exceptional player. I'm happy for him because he's playing at an incredible level.
" I think the African Cup made him believe how good he can be. He knows it, but I think it helps to win this kind of trophy for Algeria, for his country. It was so important for him.
"And from the beginning, he arrived with an incredible mentality, positive in the way he plays. He has the feeling when he gets that ball in that position, the 18-yard box close to the area, something is going to happen.
"It's a feeling and I think all the spectators can have that feeling and that is because he has a gift. He has something special."