The England right-back came close to leaving the treble winners for Bayern Munich but ultimately opted to stay and this week extended his contract at the Etihad Stadium until 2026.
The 33-year-old had a spell out of favour last season but has started the new campaign strongly and Guardiola is pleased to have retained his services after losing experienced pair Ilkay Gundogan and Riyad Mahrez.
The City manager said: “After Gundo and Riyad, losing Bernardo (Silva) and Kyle would have have been a big, big problem.
“It’s not about the quality – the skills you can find quite similar, or different players can help you – but there are some things in the locker room that are so difficult to replace.
“These guys have a lot of experience in the important moments of important games. You know exactly how he’s going to respond in the bad moments.
“It would have been a big loss. That’s why as a club of course we fought for him to stay with us.”
Walker joined City from Tottenham in 2017 and has since won 15 trophies, including the Champions League and five Premier League titles.
Guardiola believes he has matured into a far better player than when he arrived and recently underlined his qualities with his response to a calamitous error last month.
Guardiola said: “He made a wrong decision when they equalised but, right after the equaliser, the next two actions came from Kyle in the byline. It was a goal. What a top, top player.
“He forgets what happened, says, ‘OK I’m going to win the game’. That defines the big, big players.
“No doubt he’s a much, much better player than seven years ago when he arrived. That is clear.
“Everyone makes mistakes but he has an incredible heart. And he’s a really nice guy, really nice, always tries to help.
“When a player is injured, he always calls him. I was at home (after back surgery) and he called me twice. ‘How you feel, Pep?’ This counts a lot in the group of people.
“The reason why we have a lot of success? The quality of human beings that we have.”
Walker has captained City so far this season and, with Kevin De Bruyne currently sidelined, could be the favoured choice to succeed Gundogan in the role full-time.
A vote among the squad and backroom staff – in which Guardiola will not participate – is due to be held in the coming days.
Guardiola said: “The vote will be taken the next days and the players will decide. It belongs to the players, not to me. What they decide, I’m fine (with).”