The 27-year-old, who started the game on the left side of defence before switching to the opposite flank, laid on goals for Phil Foden, Riyad Mahrez and Gabriel Jesus as City claimed all three points to go top of Group A.
Cancelo has started the season in fine form, playing in all but one of the defending Premier League champions’ opening 17 games and after his latest impressive showing Guardiola acknowledged how valuable it is to have a defender who carries such a threat in the final third.
“He has been playing incredibly well all season,” said the City boss at his post-match press conference.
“Of course, he sometimes has to improve his quality.
“He has highs and lows, but he has a special ability to do something good.”
After two consecutive defeats, City returned to winning ways with a dominant display at the Etihad Stadium.
Having been frustrated by the visitors in the opening 45-minutes, Guardiola’s men found their rhythm after the break to record a convincing victory which will provide confidence ahead of Saturday’s Manchester derby.
Guardiola declared Brugge the most important game of the week at his pre-match press conference and, whilst he acknowledges this weekend’s meeting with Manchester United is a crucial fixture, he said he will always prioritise the opposition immediately in front of him.
“Every game my focus is the next one and I never think about the second one,” he added.
“I know the game against United is the most important thing. We are going to create a good environment but you cannot imagine how important today was.
“We have done two fantastic games and now we think about United.”