Conte described City's form in the Premier League as "incredible" and said the Blues would have to spend heavily in the transfer market to compete with Pep Guardiola's league leaders.
City fought back from a goal down to beat Huddersfield 2-1 on 26 November – their 11th successive victory in the league.
Chelsea are 11 points behind City after they could only manage a draw at Liverpool during the weekend, and Conte said Chelsea would have to emulate the Manchester club's strategy of adding players to a squad that is already strong to go to the next level.
"Manchester City's path is incredible, no? I think Manchester City in this season is a strong team," the Chelsea manager was quoted as saying by the Daily Mail.
"Also last season, Manchester City were a fantastic team. Then, after the transfer market, they bought their first targets and then they have improved a lot.
"They can do this also in January maybe and in the future. For this reason, we must be worried because if we want to compete with Manchester City we have to work and make the best decisions in the market.
"If you want to reach something important it's very important to have a good balance."
Last week, Conte urged Chelsea to hand a new contract to Thibaut Courtois, describing the Belgian as "maybe the best goalkeeper in the world".
Courtois, whose contract expires in the summer of 2019, has been persistently linked with a move to Spanish giants Real Madrid.
"As you know very well, if a big player decides to not sign a new contract it is very difficult for the club to face this issue," Conte was reported as saying by Sky Sports.
"But at the same time, there is space to deal with this type of situation and to try to solve the situation."