Sergio Aguero had put the visitors ahead at White Hart Lane before Danny Rose was sent off for Spurs, with Yaya Toure converting the resulting penalty.
The heavy defeat follows on from a 6-0 thrashing at the Etihad Stadium in November when Andre Villas-Boas was still in charge of Tottenham, and Sherwood firmly believes the Sky Blues are destined for their second title in three seasons.
"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."
The penalty decision six minutes into the second half appeared to be made by assistant referee Scott Ledger, who had flagged Michael Dawson offside after the Spurs skipper thought he had levelled at 1-1.
Sherwood felt referee Andre Marriner's original decision to award a corner rather than a penalty was correct but conceded his side were struggling to contain City with a full quota of players.
"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."
City manager Manuel Pellegrini disagreed with Sherwood's interpretation of the spot-kick and felt Marriner was right to dismiss Rose.
"I don't think it was a big decision because before the red card we missed at least five clear chances to score in the first half," he said.
"If we review the first 45 minutes I don't remember just one chance for Tottenham, I think our team was the best team from the beginning.
"If you ask me it was a clear penalty and a clear red card because he was the last man. The sending-off was not the thing that changed the game, the game was over and completed from the beginning for our team."
Aguero, who scored his seventh goal in five games since returning from a calf injury, was substituted with another muscular problem - with Pellegrini admitting he is unsure if it will sideline the Argentina forward for any length of time.
"We will see tomorrow with the doctor," he added.
"He has an injury in his hamstring and we will see how serious it is. We don't have an indication until tomorrow."