The Premier League champions were held to a frustrating 0-0 draw at the Etihad Stadium, as the Saints held on to claim a point in the east side of Manchester.
City dominated ball possession for a large chunk of the tie, but often lacked the finishing touch at the end, which will bring massive criticism to the club's hierarchy for their failure to sign a recognised striker in the summer.
Raheem Sterling, who was handed his first start in over a month by Guardiola, failed to make an impact after being positioned down the middle with Jack Grealish and Gabriel Jesus on either wing in attack.
However, the hosts did put the ball in the back of the net via Raheem Sterling, who pounced on the ball after Alex McCarthy failed to deal with Phil Foden's initial effort from a Kevin De Bruyne cross on the stroke of full-time.
City boss Pep Guardiola delivered his verdict on the decision, and whether he thought that the assistant referee's decision to flag Sterling offside was the right one or not.
“I didn’t watch it, not the penalty, not the disallowed goal," said Guardiola, in his post-match interview with BBC Match of the Day.
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"I didn’t see it (the offside). I’m sorry, I don’t know, the margin, the line, not even inside in the dressing room.”
The draw with Southampton could leave City in fifth or sixth place by Sunday evening, with the Champions League finalists failing to build on their 1-0 victory away at Leicester City last week.
City face Wycombe in the Carabao Cup on Tuesday ahead of their crunch league clash against Chelsea next week.
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