Sergio Aguero appeared to have kept City's slim title hopes alive by scoring quickfire goals late on to put his side 2-1 up against Palace, but Fernandinho's own goal means that the title is now Liverpool's in all but name.
The Reds saw off bitter rivals Manchester United 2-0 on Sunday and are now well on course to sealing top spot in record time, potentially as early as March 14 at Goodison Park, or possibly at the Etihad Stadium a couple of weeks later.
That would be a bitter pill for Guardiola and his players to swallow, having been such a dominant force over the past two seasons when brushing aside all comers.
City have been nowhere near as ruthless this term, dropping points in eight of their 23 matches. By comparison, they failed to win just eight out of 76 league games in the previous two campaigns.
The latest setback against Palace, one of the rare sides to have inflicted defeat on City last season, left Guardiola suggesting that finishing in the top four would be a challenge in itself.
Defeats for Leicester City, Chelsea and Man United at the weekend, the three teams directly below the Citizens, mean that the fallen champions still have plenty of breathing space in that regard.
There is no denying that this is a good time to play City, however, and in Sheffield United they face another tough task.
Chris Wilder's men have defied all expectations this term and are currently seventh in the league, one point off Man United in fifth.
Four points from their last two games has got United firmly back on track following back-to-back losses at Man City and Liverpool - Aguero and Kevin De Bruyne netting to down the Yorkshire outfit at the Etihad Stadium in late December.
That was one of just two clean sheets kept by City in their last 13 Premier League games, the other coming against Arsenal on December 15.
They have a good record when travelling to Yorkshire, however, winning on each of their last five league trips to the county - as many as they had in their previous 20 visits.
Wilder will also be fully aware that City put six goals past Aston Villa in their last away match, taking their tally to 33 goals on their travels this term.
However, with FA Cup and EFL Cup matches to play over the next week or so, plus the return of the Champions League next month, City's focus is now very much on cup competitions.
Guardiola could therefore use this match as an opportunity to rest some first-team regulars, knowing the gap on leaders Liverpool is quite simply insurmountable.
As the Catalan coach himself admitted even before the draw with Palace, there is little point in focusing on champions-elect Liverpool now.
Instead, City's biggest task is to remain motivated enough to make an impact in the other three competitions they can still win.
Sheffield United Premier League competition form: WDLLWD
Sheffield United form (all competitions): DLLWWD
Manchester City Premier League competition form: WLWWWD
Manchester City form (all competitions): WWWWWD
John Stones has endured a difficult time of things of late and appeared to injure his knee against Palace, meaning that he could drop out of the side.
Guardiola's only other injury concern is Leroy Sane, who is also closing in on a return to first-team action, though he is likely to have to wait until next month before making a matchday squad.
Should Jesus return to the XI he is most likely to replace Aguero, who has scored five goals in two Premier League appearances in January - one more than he managed in 11 outings across September, October, November and December (four goals).
As for the hosts, David McGoldrick is carrying a foot injury that kept him out of the draw at the Emirates Stadium.
Wilder otherwise named an unchanged side between the win over West United United and draw against Arsenal, which may also be the case for this clash.
United midfielder Fleck has scored five league goals this season - already more than he managed in 86 appearances across 2017-18 and 2018-19 for the Blades (four).
Sheffield United possible starting lineup:
Henderson; Basham, Egan, O'Connell; Baldock, Lundstram, Norwood, Fleck, Stevens; Mousset, McBurnie
Manchester City possible starting lineup:
Ederson; Walker, Otamendi, Fernandinho, Angelino; De Bruyne, Rodri, Foden; Mahrez, Jesus, Bernardo
Head To Head
United have faced City more often without victory in the Premier League than versus any other side, drawing three and losing four of their previous encounters in the competition.
The Citizens are looking to win three successive away league games against the Blades for the first time since a run of four between 1905 and 1908.
United have won just one of their last 15 league games against reigning top-flight champions, meanwhile, losing their last five in a row without scoring.
We say: Sheffield United 0-1 Manchester City
Three of United's six Premier League losses this term have come against teams starting the day in the top three of the division, losing each of those without scoring. We expect a similar outcome in Tuesday's clash at Bramall Lane.