The Portuguese tactician has been impressed with the transfer movements of City manager Roberto Mancini this summer following the arrival of Sergio Aguero this week.
Villas-Boas has opted against investing heavily in new players thus far, and he admits the movements made by his Italian counterpart means the Citizens will be a force to be reckoned with next season.
“I think it's pretty clear that they are building a squad to fight for the title,” he said.
“It's for Mancini to say what his objectives are but my personal perspective is that they are making good signings and that they can threaten for the league.”
The 33-year-old feels the title race will be the closest yet with the top six sides strengthening considerably since the opening of the transfer window.
“I think Man United,
as the title holders, will be a reference for everybody but you can see the amount of activity Manchester City have had in the market,” he said.
“It's pretty clear they have a title objective as well.
“Liverpool
did more or less the same, Tottenham [Hotspur] want to get back into the top four so they'll be challenging and Arsenal
are always a threat - we haven't seen the last of them in the transfer market - so everybody is strengthening and as long as everybody feels happy with what they have, everybody competes in a different way."
The West London side have yet to make any significant movements in the transfer window despite being linked with moves for Tottenham’s Luka Modric and Javier Pastore of Palermo.
Focus appears to be drawn to the youth recruitment drive, with the Blues bringing in Oriol Romeu from Barcelona and Genk goalkeeper Thibaut Courtois.
“It all boils down to the evaluation period, there's still plenty of time for those decisions,” the former FC Porto manager added.
“The players that we have shown interest in are young and looking to the future of the club, you might see similar moves in the future from us.
“It is one of the oldest squads in the Premier League, we respect them and we are happy enough with the quality that we have to challenge for the title but we are also looking into the future.
“We are so comfortable at the moment with what we are getting because of the young players we have. Things for the future are brighter for us in that respect.”
Daniel Sturridge and Josh McEachran are just two of the young stars that Chelsea have on their books and Villas-Boas has hinted that both may be more involved with the first team next season.
“I wouldn't like to focus on an individual but I think Daniel deserved above all to come back to this club and have this pre-season with us,” he said.
“This is the group where he belongs and I think he has shown the quality he has at Bolton when he went there. He has a natural abi
