City suffered a 3-2 loss at Anfield at the weekend as leaders Liverpool stole a march in the race for the Premier League title and Pellegrini's men had to rely on a late Samir Nasri equaliser to earn a point at home to basement club Sunderland on Wednesday.
Fernandinho put the hosts ahead in the second minute before Connor Wickham scored two goals in 10 second-half minutes to turn the match on its head. Nasri's strike at least closed the gap between City and Liverpool to six points with a game in hand.
And Pellegrini believes the impact of Sunday's result was plain to see in his team's performance, despite making five changes to the starting XI.
"We did not play well but we had in our mind the game against Liverpool," he is quoted as saying by BBC Sport. "We did not deserve to win.
"It (a draw) is not enough because we have Liverpool and Chelsea on top of the table and we needed to add three points - we will see in the future what will happen but our chances are less.
"The team missed a lot of things, the way we played, the way we defended and our character - we could not take out of our mind the game against Liverpool.
"At this moment it is more mental than physical.
"When it no longer depends on what you can do it is very frustrating but we must finish (the) season the way we have done practically the whole season, we must try to win our last five games - and hope that team will do it."
