Yaya Toure and Carlos Tevez took advantage of a rare Frank Lampard penalty miss to guide Roberto Mancini's men to a crucial victory at the Etihad Stadium.
Lampard was a kick away from his 200th Chelsea goal when he lined up a second-half spot-kick, but Joe Hart, who stayed on after fouling Demba Ba, saved from his England team-mate.
Yaya Toure made Chelsea pay with a fine finish from inside the area and substitute Tevez made victory certain with a long-range effort late on.
The Blues now trail City by seven points and Benitez, who was subjected to further abuse from the travelling supporters, accepted it was a damaging result.
The Spanaird said: "Always when you lose, you have to be disappointed. This game was important for us, so I am more disappointed. We could have been closer (to City). We have to carry on to try to win our games and fight for the top four."
Benitez rued the penalty miss but was unsure whether Hart should have been sent off. He said: "I haven't seen the replay, but at least yellow card. You can argue he is going in this direction but it is still a clear chance.
"I think it was a turning point. We didn't do well in the first half but we went to half-time at 0-0. We were talking about keeping the ball, doing better and showing more character. Then we had the penalty. It was a crucial moment in the game."
Benitez, who is also challenging in the Europa League and FA Cup, made two big selection decisions by leaving heavyweights John Terry and Fernando Torres on the bench.
The Spaniard said: "We are playing too many games, games each three days. You have to manage your squad. Some players have fresh legs and you can play them.
"We can manage in the three competitions. We know we can do it. But if we feel we need to prioritise something we will do it."
When asked if he was tired, Benitez joked: "I was not running so I am fine. I am disappointed because we could not win. I am just thinking about the next challenge."
Chelsea last week