Liverpool return to action after the international break, with Iraola pleased by his side's progress but aware they still need to improve in key areas.
"We need to be very, very good if we want to beat City," Iraola told beIN SPORTS.
"They've been especially offensive, scoring a lot of goals lately. We know the names that are very dangerous."
Liverpool have shown defensive improvement in recent matches, but Iraola wants his players to combine that progress with greater attacking fluency and control.
He admitted his team had sometimes struggled to balance their attacking approach with defensive responsibilities, pointing to the goals conceded on the counter-attack against Newcastle as an example.
"We want to attack very well and defend very well," he said. "Sometimes you have to adapt the team to what you prefer or what the requirements of a specific game are."
Iraola also confirmed that Alex Isak and Cody Gakpo returned from international duty with injuries. Their availability for Sunday's match will depend on whether they recover in time.
Despite Liverpool's unbeaten run, Iraola recognises the scale of the challenge against a City side that has won all its matches during the same period.
The Liverpool manager has not set a specific points target for the season, instead insisting his team must aim as high as possible.
"If we can give these players a good platform and a good structure, I'm sure we will be there fighting for the titles," he said.
Iraola is also expecting Anfield to play its part in what promises to be a major test of Liverpool's progress.
"We know we will have to be at our best, and I also know the people will be looking to help the team."
