The Reds were 4-0 winners against title rivals Arsenal in their last Premier League game before the international break to underline their status as title challengers.
However, Jurgen Klopp’s side endured a miserable afternoon at the Etihad Stadium after Manchester City beat 10-man Liverpool 5-0 to deliver a hammer blow to their rivals’ title hopes.
Liverpool were the better side for most of the first half despite Sergio Aguero’s opening goal before Sadio Mane’s red card put the Citizens in control of the Premier League clash.
Manchester City youngsters Leroy Sane and Gabriel Jesus both scored two goals apiece to secure an emphatic 5-0 win against the Merseyside outfit.
Former Liverpool captain Souness believes Klopp’s men have to learn lessons from their five-goal thrashing at the hands of a direct title rival.
“5-0 is a bit of a shocker really. When you go down to 10 men against a very good team it’s about damage limitation,” Souness told Sky Sports.
“Liverpool will look at that and learn from it. 5-0 can be psychologically damaging but we’ll have to wait and see if it has.
“Will it be psychologically damaging? I hope not. They’ve got a very good team at this moment and need to get some victories under their belts as soon as possible. Then it’s upwards and onwards.
“But it’s a blow and in football, like life, the blows you take determine what kind of person or team you are. They should learn from that and come back from that.”
Liverpool made an unbeaten start to the Premier League season thanks to victories over Crystal Palace and Arsenal as well as a 3-3 stalemate at Watford.
The Reds signed Mohamed Salah, Dominic Solanke, Andy Robertson and Alex Oxlade-Chamberlain in the summer transfer window.
RB Leipzig midfielder Naby Keita is set to join Liverpool next summer after the two clubs agreed a deal last month.
MORE: Man United latest news
MORE: Arsenal latest news
MORE: Chelsea latest news
MORE: Liverpool latest news