Louis van Gaal's side took a 3-1 lead early in the second half, but a contentious penalty decision allowed the Foxes back into the game.
In the final 20 minutes, Nigel Pearson's men took control of the match and crushed the Red Devils at the King Power Stadium.
"Going forward they're a lot better than they have been in the last 12-18 months and that's a positive," Neville told Sky Sports News.
"But in the first half, every ball that got played forward from distance a Leicester player won it, whether it was the first ball or the second ball.
"In the second half, a decision goes against them but make no mistake about it they're soft centred. There's no doubt Manchester United are soft centred. They're not tough enough."
United are 12th in the Premier League following their defeat.