Guardiola made seven changes from the team which started against Atletico Madrid in the second leg of their Champions League quarter-final.
One of those changes included the return of Zack Steffen who replaced Ederson in goal. However, the second-choice keeper endured a nightmare moment as his calamitous mistake gifted Liverpool their second goal.
The Reds took a 3-0 lead before the interval and hung on for the win despite a City comeback in the second-half.
Speaking after the 3-2 defeat, Guardiola defended his team selection, saying: "I have a lot of confidence in my players and selections. I trust a lot of them. We had a terrible run of fixtures and travel and a lot of important games. That's why we needed fresh legs.
"We started well but after one set-piece, where Liverpool are so strong, and the second was an accident, it was tough. Then we conceded a third in the last minute of the first half.
"In the first half we were so passive, we were scared to support people when we went there, but in the second half we had the momentum, we had the most clear chances."
Guardiola later added: "When you play a lot of games and you don't have that big a squad - when everybody is fit it's OK but when we have a few injuries it is not enough.
"We've had Atletico Madrid, Liverpool, Atletico Madrid, Liverpool in a short time.
"We can rotate some players but we know when we arrive at this stage of the season and you are fighting for the titles there is no time to rest."
The Man City boss was also questioned about Steffen's error, which allowed Liverpool to double their lead early in the opening half.
The Spaniard defended his goalkeeper, saying: "It's an accident, it happens. Edi (Ederson) was close (to making a similar mistake) in the last game (against Liverpool) as well. We need that to create our football. Mane was quicker and that's all.
"I'm pretty sure Zack didn't want to do it. Sometimes strikers miss chances in front of keepers, but keepers are punished more."
Next up for the Citizens is a potentially tricky Premier League clash against Brighton - a side which has picked up back-to-back victories over Arsenal and Tottenham.