The Citizens were by far the better team for much of the first half at the Estadio Jose Alvalade and were leading after just four minutes thanks to Phil Foden, but after spurning several chances, Viktor Gyokeres restored parity for Sporting shortly before half time.
A combination of calamitous defending and well-worked Sporting attacks resulted in the hosts scoring twice inside the first 90 seconds of the second half through Maxi Araujo and a Gyokeres penalty to put Ruben Amorim's men firmly in control of proceedings.
Erling Haaland then smacked a controversially-given penalty against the crossbar before Sporting's prolific marksman Gyokeres completed his hat-trick with another penalty to end Man City's record-breaking 26-game unbeaten run in the Champions League.
Defeat for City represents their third in a row across all competitions having previously lost 2-1 against both Tottenham Hotspur (EFL Cup) and Bournemouth (Premier League); not since 2017-18 have the Citizens suffered three consecutive defeats.
Bernardo Silva: 'Man City are in a dark place right now'
After the match, Bernardo Silva - City's captain on the night - expressed his disappointment and has urged his teammates to raise their standards if they wish to escape the "dark place" they find themselves in.
"It's disappointing because we're a bit in a dark place right now," Bernardo told reporters. "Everything looks to be going in the wrong way. Even when we are playing well we don't score our chances and we concede too easily. We definitely need to look inside and check what we're not doing well.
"The good thing is even though we have lost these three games, we are still in a good position, especially in the Premier League. After losing three games we are still in the main competitions fighting for everything. But we need to better, obviously."
Guardiola does not agree with Bernardo's gloomy assessment of City's current state and has claimed that there were signs of improvement in their performance against Sporting following last weekend's defeat at Bournemouth.
"I don't agree with him," Guardiola told reporters. "We played really bad against Bournemouth and really good today. The only regret is conceding the third and fourth. The penalties are not necessary.
"[Sporting] did a good action at the start of the second half, but 44 minutes left and emotionally we were not stable.
Guardiola: 'I'm here for the challenge, I won't give up'
"We had a fantastic first half against a top team, we were close to scoring a second and third, but emotions are difficult when after two minutes of the second half you are losing 3-1.
"We lost 4-1, so there is no defence today. We lost, we deserved it but I know the way we behaved today, how good we were and the young central defender (Jahmai Simpson-Pusey) had an exceptional game.
"Nothing else. When you lose 4-1, what can I say? I like my team, we were so close to 0-3, the stadium was calm, but in one action we lost simple things with quality."
Guardiola has insisted that he will not back away from the challenge he faces in quickly guiding his Man City side back to winning ways.
"It is a tough challenge, but I am here," the Catalan coach said. "We knew it would be a tough season at the start, but this is what it is. I like it. I love it. I want to face it and lift my players. I won't give up, that's for sure."
Man City will hope to enter the international break on a high and avoid losing four consecutive matches under Guardiola for the first time when they travel to the Amex Stadium to face Brighton & Hove Albion in the Premier League on Saturday.