The Black Cats have got the better of City three times in a row at the Stadium of Light, with the Sweden international featuring in their last two wins.
Despite Gus Poyet's side currently being second from bottom in the Premier League table and City being fifth, Larsson believes that his team can pick up maximum points against the Etihad Stadium outfit.
"We have beaten them three times in a row, but what a team they are and what a fantastic game to play in," Larsson told the Daily Express.
"At home, in front of a big crowd backing us, we have shown we can do it as we have beaten them before in previous seasons.
"We know we have the confidence of beating them before, but if we are being honest we will have to play the perfect game to beat them again. Why not do that on Sunday?
"It will need all of us, from one to 11 to be at our very best to get a result, but we can do it as we have shown in the past.
"It's all about breeding confidence and we have won two out of our last three now which sounds a hell of a lot better than it has done for a while.
"That's the way you need to look at it and gain confidence because confidence is such a massive thing in football.
"It can disappear very quickly and gain it maybe not as quickly, but I think we are gradually beginning to build up a little bit of confidence and a win in the cup will not do us any harm at all."
Watch Sunderland take on Manchester City live on Sky Sports HD1 (2.05pm kick-off) during Ford Super Sunday.