The Blues trail Roberto Mancini's side by four points, but a win at the Etihad Stadium on Sunday will see them cut that margin to one.
Terry said that the return of key players has given the team a "real good chance" of breaking the Citizens' hold on second spot.
"Some say we've had a bad season, but we can still easily get second," Terry told the Fulham Chronicle.
"If we can improve our form 15-20% we'll certainly can give Manchester City a run for sure.
"If we can go on a run that we're more than capable of - we've got the two boys (Moses and Mikel) back from the African Nations now, we've got everybody fit again which is great, everyone fighting for places – we've got a real good chance."
The 32-year-old has missed a large portion of the season with a knee injury.