Ivanovic believes a Chelsea victory would be psychologically important, although City have yet to drop a point at home this season.
Jose Mourinho's side will draw level with City on 53 points - two behind leaders Arsenal - if they win at the Etihad.
Ivanovic told Sky Sports News: "When you want to win the title you never win it in the one game, so you have to play hard all season long. But for us it's a massive game and the crucial game for us this season is this one against Man City."
Chelsea beat City 2-1 at Stamford Bridge back in October when Fernando Torres, who is currently out injured, took advantage of a late mix-up between Joe Hart and Matija Nastasic to score the winner and Ivanovic reckons Chelsea are now a better side.
The Serb added: "We have improved massively as a team. We are staying together, we are fighting together, we control the ball well and we know the performances of team-mates better - a lot of small details that we have improved.
"This is the biggest challenge for us this season but I think we are ready for it.
"We have to be focused. It can be psychologically very important and very good for us but we know the way and we will try to do everything to stay fighting for the title until the end of the season."
Meanwhile, Mourinho has conceded he did not expect Chelsea captain John Terry to be performing at such a high standard this season.
Terry had spells out of the team under Rafa Benitez last term, but has regained his position as a mainstay of the side since Mourinho's return to Stamford Bridge.
Mourinho said: "I was not expecting him to be the best centre-half in England. Not after the season he had last year. I was not expecting it.
"I would like to see him playing this way until the end of the season.
"People talk about England and the World Cup is between him and Roy [Hodgson], not with me."
Watch Man City v Chelsea on Monday Night Football on Sky Sports 1HD, kicking off at 8pm