Chelsea lost 5-3 at Tottenham on New Year's Day and now sit level with City at the top of the table after Frank Lampard, a team-mate of Terry's for 13 seasons at Stamford Bridge, scored to earn last season's league winners victory over Sunderland earlier in the day.
It was the Blues' second loss of the season, but stuttering away form has allowed City to wipe out the deficit which in November had many predicting a Chelsea procession to the title.
"It's hard to see them claw us back," Terry said on chelseafc.com.
"We were eight points in front and now we're level on points.
"It's disappointing to have lost that lead but we said in the dressing room we'll come together, put a run together and hopefully get a lead again."
Jose Mourinho, who railed over a "clear campaign" against Chelsea following the draw at Southampton, was outraged by further perceived injustices against his side.
Like his manager, Terry believed the Blues should have had a penalty when 1-0 up after Jan Vertonghen fell on the ball and brushed it with his hand.
"We should have had a penalty at Southampton and we should have had another one at 1-0," said the captain, who scored Chelsea's third, which proved little more than consolation.
"The game's finished then
Sometimes you get them, sometimes you don't, and in the last few games we haven't.
"We're very disappointed to start the New Year with a defeat but we'll move on from this.
"I thought at times we played some really good football, it just wasn't our day so we'll forget this one and move on very quickly.
"Once we got the goal they were on the back foot but they scored from nothing and were back in the game."
The defeat could have many ramifications, not least for the title race and Mourinho, who invited scrutiny on the performance of referee Phil Dowd at White Hart Lane and could face Football Association disciplinary action.
Mourinho felt Federico Fazio had brought down Eden Hazard when the last man and should have been sent off.
Despite accepting Hazard's version of events and that no foul had been made, Mourinho used the incident to highlight Dowd's display.
Mourinho told BT Sport: "Hazard, honest as always, tells me in his opinion it was not a foul or a red card, so that's good, in spite of Mr Dowd is too slow to go with that ball, he was like 40 yards away, he made the right decision.
"The decision (that) was like 10 metres away, he couldn't make and that's a decision that is the crucial moment of the game."
That was a reference to the Vertonghen incident, which came when Chelsea led and Mourinho was unwilling to forget, even though many thought it incidental in a game where Chelsea conceded five goals.
Disciplinary action may await for the Portuguese and Chelsea defender Gary Cahill, who may be punished for kicking Harry Kane in the back while the striker was on the ground late in the game.
Source : PA