Manchester City boss Pep Guardiola has admitted Arsenal's summer signings have taken them to the "next level" ahead of their meeting in the Community Shield on Sunday.
The Gunners have signed Kai Havertz, Declan Rice and Jurrien Timber for a combined total of £208m after being edged out by City in the Premier League title race last season.
City beat Arsenal in all three of their matches during the previous campaign, racking up a combined score of 8-2, while Mikel Arteta has won just one of 10 match-ups with his former boss.
However, asked whether Arsenal have stepped up a level as a result of their summer business, Guardiola said: "Yes, definitely.
"Mikel has brought Arsenal back into the position they were."Guardiola - who led City to the treble last season - also highlighted the signings made by Manchester United, Liverpool and Newcastle, adding: "There are a lot of teams that are going to fight for everything and the challenge is massive for us.
"You cannot win more than we won - it's impossible. But the challenge is how hungry we are and if we still have the desire to defend what we won.
"We will see during the next 11 months, particularly during the lower moments - and we will have more of them than ever - how we can overcome."
City were also interested in signing Rice but pulled out of the race for the West Ham captain - something Guardiola says is not a source of disappointment.
"Absolutely not," he insisted. "Declan Rice rightly decided to go to Arsenal. The offer was incredible. All the best because I think he is a really important player.
"I think he is a very nice guy. For the national team he is, and will be, important. Arsenal bought an incredible player."
Pep: We are not in 'best way'After claiming the Premier League, Champions League and FA Cup last season, City have the chance to compete in the Community Shield at Wembley, the European Super Cup against Sevilla in Greece on August 16 and the Club World Cup in Saudi Arabia in December.
Guardiola says his side will try to add to their already bulging trophy cabinet but believes his side are trailing Arsenal in their preparations for the new season.
"Normally when you win the titles that we won, they give you the chance to fight for new ones," said Guardiola. "We played in this competition for the last three years, we play Sevilla in the next weeks and in Saudi Arabia in the winter.
"Of course we are going to try. We finished two weeks later than Arsenal, our pre-season started two weeks later than Arsenal, so we are not in the best way.
"Always we struggle to restart every season. But it's a final and hopefully our mentality will help us to be there and compete against them."
Arteta: Arsenal must improve to challenge CitySpeaking ahead of Sunday's game, Arsenal boss Mikel Arteta insists the Gunners must improve this season to challenge City for major silverware.
Asked if this is the start of a new era for the club, Arteta said: "This is what we want, fighting for every trophy. We have to prove that. What we did last year was not enough to win the big trophy and we have to be better.
"We're very excited to play a final and have the opportunity to win a trophy. We're playing against a team that is the team to beat, the best team in Europe last season and we know what the standards are."
Arteta will be without forward Gabriel Jesus for the showpiece at Wembley after the former City star was ruled out for "a few weeks" following knee surgery.
"He is disappointed as he was feeling good but this issue was there," Arteta said. "No one expected a medical procedure but we made that decision, I'm sure he will be back soon."
At the end of July, Arteta admitted Arsenal's 30-man first-team squad is "unsustainable" when asked about potential incomings ahead of the new season.
The Gunners took 31 players on their pre-season tour of the USA, but with several of their U21s in the travelling party, a number of first-team members were left behind and are lacking match practice with just one week until the start of the Premier League.
Nicolas Pepe, Cedric Soares and Albert Sambi Lokonga, who all spent time out on loan away from the Emirates last season, are among that group but remain contracted to the club with less than a month left of the summer transfer window.
Asked about how his squad is shaping up ahead of the new campaign, Arteta said: "We are working on a few things - there is still time to do that. We have to make a few decisions.
"We're very happy with the squad we have that's for sure. We want a healthy competition in the squad and we're working on that."