City's ruthless 3-0 win at struggling rivals Manchester United on Tuesday took them to within three points of Chelsea and with two games in hand, they are the bookmakers' favourites to finish the campaign on top of the pile.
Arsenal are only three points behind Pellegrini's side, but having played two games more, they cannot afford to lose when the teams meet at the Emirates Stadium.
Humiliated 6-0 by Chelsea last weekend, Arsenal conceded a last-minute equaliser in a 2-2 draw against Swansea on Tuesday, and Pellegrini knows City, who routed the Gunners 6-3 at home earlier this season, can deliver another major blow to their title challenge with a win this weekend.
"It was a very good start to the week and we hope we finish in the same way," Pellegrini said.
"It is always important for this club, the players and the fans to win the derby against United and we did it.
"Now we must continue by trying to win the next match and continue fighting for the title.
"This is a big game because it is against a team that is fighting for the title also.
"Maybe Arsenal did not have a good week but they continue being a very good team.
"It is not the match that will decide the title. But it is a huge step for continuing in the way we are going."
Gunners boss Arsene Wenger has endured a dispiriting time over the last week, with Arsenal's title bid fading and injuries to key players adding to his woes.
Speaking immediately after the Swansea draw, Wenger conceded winning the title would be difficult, but he struck a more defiant tone at his pre-match press conference on Friday.
"We have not given up (on the title), believe me and we can show that on Saturday. It is our attitude that will decide that," Wenger said.
"Champions keep going when everybody else would give up. We have an opportunity to show that we have that mentality.
"City are the favourites with Chelsea and Liverpool, but when you play one of the favourites, you have an opportunity to shorten the distance with them."
- More Moyes protests? -
With Liverpool not in action until Sunday, when they host sixth-place Tottenham Hotspur, Chelsea will have an opportunity to stretch their lead to four points when they visit fourth-from-bottom Crystal Palace.
Saturday could also prove a pivotal day for Manchester United manager David Moyes, whose position is once again under scrutiny following his side's midweek derby defeat.
There were isolated displays of fan dissent towards Moyes at the end of that game, while a group of United supporters have threatened to charter a plane to fly over Old Trafford during Saturday's match with Aston Villa, towing a banner calling for him to resign.
United's hopes of a top-four finish have been all but dashed and on Tuesday they welcome Champions League holders Bayern Munich to Old Trafford for the first leg of a daunting quarter-final.
In stark contrast, life could scarcely be rosier for United's arch-rivals Liverpool, who closed to within a point of Chelsea by beating Sunderland 2-1 on Wednesday.
Daniel Sturridge claimed his 20th league goal of the campaign in the game, but he has echoed manager Brendan Rodgers by expressing caution about his side's title prospects.
"There are seven games to go and they will all be difficult. They will all be different in their own way," he said.
Arsenal's travails have given Everton encouragement that they could steal into the top four.
Roberto Martinez's side currently trail Arsenal by six points, with a game in hand, and on Sunday visit bottom club Fulham, who are four points adrift of safety and in danger of being cut adrift.
Fixtures (1500 GMT unless otherwise stated)
Arsenal v Manchester City (1730 GMT), Crystal Palace v Chelsea, Manchester United v Aston Villa (1245 GMT), Southampton v Newcastle, Stoke v Hull, Swansea v Norwich, West Brom v Cardiff
Fulham v Everton (1330GMT), Liverpool v Tottenham (1600GMT)
Sunderland v West Ham (2000GMT)