Manchester City manager Pep Guardiola has again cast doubt on the Premier League champions' readiness to win the Champions League for the first time despite being favourites for the competition.

City host Bundesliga strugglers Schalke on Tuesday with a 3-2 first leg lead in their last 16 tie hoping to avoid the pitfalls that did for Paris Saint-Germain and Real Madrid in Champions League shocks last week.

Guardiola admitted even he was taken aback by Manchester United's stunning 3-1 win in Paris and holders Madrid's capitulation to a talented young Ajax team, but refuted suggestions their elimination had cleared the way for City to finally conquer Europe.

"We are teenagers in this competition that's my feeling. It's not excuses, of course we want to win it," said the Catalan coach on Monday.

"You have to dream and point as high as possible but in the same time you have to accept there are other teams thinking the same with a lot of quality and lot of talent."

Guardiola was annoyed by City's mistakes in conceding two penalties and having Nicolas Otamendi sent off 22 minutes from time in Gelsenkirchen three weeks ago despite turning around a 2-1 deficit with 10 men through late goals from Leroy Sane and Raheem Sterling.

And he used that experience to warn his players against any complacency.

"In domestic competition there is another game, in this competition there is not another game. It is something unique, the focus is incredible and when you make something wrong they (the opponent) punish it," he added.

"Schalke had two shots on target and scored two goals. We played 23 minutes 10 v 11 when we could avoid that second yellow card from Nico.

"We are lucky today we are here 3-2 up when we could be 3-1 or 4-1 down. That's the reality in this competition. (There is) work to do, be calm and focused."

Along with the suspended Otamendi, Fernandinho will again miss out through injury, but the Brazilian's absence has not been felt as badly as first feared due to Ilkay Gundogan's form.

The German has deputised ably in the holding midfield role, but has so far refused to commit his future to City beyond his current contract, which expires in 2020.

"There is no decision yet otherwise I would have signed or rejected a contract. I would say we are still in talks," said Gundogan.

"I'm 28 years old now so obviously my next contract will decide where I am for maybe the end of my career.

"Everyone feels different, (whether) to go for a new challenge or change something. I am always open-minded for challenges, it is not (an) obvious (decision).

"Everyone has to make their own decision and at the moment I try to play as good as possible."

Guardiola, though, urged Gundogan to make his intentions clear.

"I would prefer him to stay but at the same time I want to feel he wants to stay too," said Guardiola.

"If he doesn't want to stay, he has to leave."