The 20-time English champions and Pep Guardiola's side have enjoyed a good start to the 2017/18 season. The two Manchester clubs, who have the same number of points, have taken the top two spots in the table, with Jose Mourinho's side sitting second in the table due to City's superior goal difference.
City have already registered a 5-0 victory over Liverpool at the Etihad. The same fixture saw Jurgen Klopp's side playing the majority of the match with 10 men after Sadio Mane was shown a straight red for his tackle on opposition goalkeeper Ederosn in the first half.
Scholes claims City's defence has not been tested after six matches. The former England international midfielder believes United have a more balanced side that their neighbours and thus backed Mourinho's side to edge the Etihad outfit for the title.
"They [Manchester City] played well and scored a lot of goals. They have been the most entertaining team going forward in the league. But, I don't think their defence has been tested yet in this season. Liverpool had Mane sent off and it was a little bit easier for them," Scholes told reporters at the Premier Futsal tournament.
"United have a team capable of scoring goals and also defending well. You need both aspects to win the Premier League. With City we'll have to wait and see. There is Chelsea as well, who after a slow start have picked up."
"I think so [United are title contenders]. From the first few games, they have a squad capable of winning the league. It's still early at the end of the day. From what I think, they have a chance of winning the league."
City are set to be without left-back Benjamin Mendy after he suffered a knee injury against Crystal Palace. His absence could force Guardiola to enter the transfer market for a new full-back in January.
Vincent Kompany has struggled with fitness over the last few years. He is currently on the sidelines and has not featured for City since the last international break. This leaves the former Barcelona manager with John Stones, Nicolas Otamendi, Eliaquim Mangala, Danilo and Kyle Walker as the recognised defenders in the squad.
Meanwhile, Scholes has joined another United legend Ryan Giggs, World Cup winner with Brazil Ronaldinho and other former players at the 2017 Premier Futsal. It is the world's biggest futsal promotion company founded by Indian entrepreneurs Abhinandan Balasubramanian, Dinesh Raj and Nithyashree Subban.