City surged to the top of the table on Wednesday, with a comprehensive success in north London lifting them above Arsenal.
Tottenham struggled to contain the free-scoring Blues from the off, but were able to keep themselves in the tie until a defining moment early in the second half when Danny Rose was dismissed for a clumsy challenge on Edin Dzeko inside the penalty area.
City would go on to convert the spot-kick and net a further three times as they made it 11 goals in two league meetings with Spurs this season.
Sherwood admits that Manuel Pellegrini's side must now be considered favourites to go on and take the crown, with the Blues boasting a ruthless streak which should serve them well.
"We've played the champions today, without question in my opinion," he said.
"Unfortunately for everyone they play, they don't just score one and shut up shop, they keep coming. If anyone is going to win the league you want a team like this to do it because they entertain.
"It's not great for an opposition manager, believe me, but they just put you to the sword. That's how football should be played in my opinion.
"They've got to win it now, they've won it before but Manchester United are the champions now. But I just think these guys are on a different level to anything in the league."
While conceding that Spurs were beaten by the better side in midweek, Sherwood does feel that referee Andre Marriner and his team of match officials got the Rose decision wrong - with the penalty call made by an assistant.
"I think Andre got it right in the first place when he called it as a corner," Sherwood added.
"Unfortunately for us, the linesman decided that Andre got it wrong and he's given a penalty there. I think Danny's making a last-ditch tackle so he's having to lunge in there a bit. He clearly wins the ball - I think we will appeal.
"It made a difference to the scoreline but they were excellent, weren't they? You've got to hold your hands up. Even before the sending-off, they come at you from all angles and they are the best team in the league by a country mile."