There have been suggestions that it is a three-horse race between City, Chelsea and Liverpool after the Gunners dropped points against the Blues and Swansea City.
However, Pellegrini, whose side will take on Arsenal on Saturday, is refusing to rule them out of the chase.
"I think Arsenal have a chance of winning the title," Pellegrini said in Friday's press conference. "Maybe they didn't play well or have the results they needed in the last two matches.
"But I think that all the teams will drop points also from now until the end of the season, so I continue thinking that Arsenal have a lot of chances to fight for the title."
City are three points behind leaders Chelsea with two games in hand.