UEFA: Copying City will lead to ruin
City have spent huge sums on the likes of Carlos Tevez, Roque Santa Cruz and Emmanuel Adebayor during the off-season but Taylor believes they, and Spanish giants Real Madrid, are setting a dangerous precedent.
"I would say in this financial climate, it is surprising, a little bit destabilising of the market," Taylor told BBC Radio Five.
"It is raising the ante in terms of the player costs, in terms of the general market place, which is not a thing that gives us a great deal of comfort in these difficult times.
"There is certainly disquiet in the corridors of power here (at UEFA)."
The demise of Leeds United, who were relegated from the Premier League in 2004 saddled with debts, is often used as an example of how a big club can hit the rocks and Taylor said their plight should be a warning.
"There are stories concerning some English clubs that are of significant concern," he said.
"There are a number of English clubs where the value of the club itself has fallen significantly and they are effectively on the market.
"We've seen what has happened in recent years with a number of very high-profile clubs, Leeds United for example. They fell into serious financial difficulties by over-extending themselves.
"In this current economic environment, I would never say never to anything like that. Clearly we do not see that as imminent but the concern is that we have to establish a stronger financial basis on which clubs can compete."
Liverpool's parent company Kop Holdings, owned by Americans Tom Hicks and George Gillett, announced a loss of 42.6 million pounds last year mainly due to interest payments to service the debt taken out to buy the club.
They recently renegotiated the club's debt with the Royal Bank of Scotland, believed to be around 290 million pounds.
Manchester United's American owner Malcolm Glazer also borrowed heavily to complete a takoever of the English champions in 2005, sparking unrest among supporters.