The Gunners fell five points behind Premier League leaders Leicester City due to a below par performance against the Red Devils which prompted Sky Sports pundit Souness to have a real go at Arsene Wenger's men.
Souness feels Arsenal are mentally weak and lack confidence as their season threatens to fall away in the wake of a third game without a win.
"This is an Arsenal team you were saying a month ago was a real team. They've got to play Tottenham, Barcelona - by March 16 they could be out of all competitions. Arsene Wenger must be tearing his hair out.
"This Arsenal team just doesn't have 'it' - and I'll stand on my head if they prove me wrong and go and win this league. That today was totally unacceptable.
"It worries me that Arsene continually talks about his team being mentally tough - it's almost as if he's trying to persuade them. They're vulnerable. They don't look like a confident group.
"They had a chance to put down a real marker today and they've been so weak, so insipid. If I were an Arsenal supporter I'd be so angry right now. There's so much about Arsenal to like but - in equal measure - so much to dislike."
Teenage debutant Marcus Rashford scored a double for United before Danny Welbeck responded prior to Ander Herrer's second-half strike. Mesut Ozil made it 3-2 in the 69th minute but the Gunners were unable to find an equaliser in what was a disappointing day for the North London outfit.