First half goals from Marcus Rashford and Anthony Martial were enough to secure the maximum points for the visitors.
The champions are now 14 points behind runaway league leaders Liverpool, who won comfortably on the South Coast against Bournemouth.
Manchester City’s hopes of winning the title for three consecutive seasons have been dented by the Red Devils.
Guardiola admitted he was not happy with the result but was very happy with his team’s dedication to get back in to the game.
"Yes we lost 1-2 but I congratulate my team, my players were fantastic, we are a fantastic team,” the former Barcelona and Bayern Munich coach told BBC Match of the Day.
"They are so fast, so quick and sometimes when you lose the ball it is more difficult. We tried, we got to the last third many, many times and they can run. Maybe a bit more than usual."
The 48-year-old said the title race should not be discussed now, but Manchester City have to try to continue fighting.
He added: "It is not time to think about that. We have to think about what we have to do and think about the next game. Doesn't matter if six, eight or 14 points we have to continue. We are a fantastic team."
"We have to try to continue, there are many things to play for. It's difficult because the opponents are on an incredible run winning 15 games out of 16.”
