A run of good form around Christmas had put Chelsea within eight points of Manchester United with a match in hand, but the Blues have plummeted of late, thanks mainly to a dire run of home form.
Benitez's team have won just once at Stamford Bridge in the league since he took over seven weeks ago, leaving the Blues some 13 points off the summit.
A shock loss to bottom side QPR, and a disappointing 2-2 draw with Southampton on Wednesday, means the Blues are now in danger of failing to qualify for the Champions League for the first time since Roman Abramovich bought the club 10 years ago.
Benitez, who is expected to leave at the end of the current season, remains upbeat about winning silverware to appease the disgruntled Chelsea support, but he admits the league title is now out of reach.
"In terms of the league I don't think we can do it," Benitez said ahead of Sunday's game against Arsenal.
"But the Capital Cup is there, the FA Cup is still open and the Europa League is still open.
"I just have to give the team the confidence that we can win against anyone. If you have that belief it becomes easier.
"The team is very close. We have (John) Terry and (Frank) Lampard back from injury. Now we have to be more consistent."
Although the title is now out of his reach, Benitez can firm up Chelsea's Champions League ambitions by extending their eight-point lead over Arsenal at Stamford Bridge on Sunday.
But having surrendered a two-goal lead against the Saints just seven days after two glaring errors from Branislav Ivanovic gifted Swansea victory in the Capital One Cup, Benitez admits his team must be more disciplined in defence.
"The team are scoring a lot of goals, as we expect them to, but we have to manage this advantage in a better way," said the Chelsea interim boss, who may hand Terry his first start since November.
"We have to be more clinical. We have to defend as a unit, as a team, be more compact, and not give them any hope they can score."
Arsenal put in one of the most memorable performances of last season at Stamford Bridge, coming from behind to register a 5-3 victory thanks to a superb hat-trick from Robin van Persie.
Arsene Wenger can no longer rely on the Dutchman's goal scoring talents, of course, but with Jack Wilshere back in the side, and the addition of midfield marvel Santi Cazorla, the Gunners are still more than capable of claiming victory at Stamford Bridge.
Benitez would be forgiven for wishing his team were up against weaker opposition, but he is relishing the chance to bounce back from the Southampton draw.
He said: "It's always important when you have a draw at home to have a big challenge ahead of you.
"To have Arsenal is a very good thing for me and the players.
"They are a rival who are close to us. We have to use that as a positive.
"They are close (in the league), and if we win there'll be a big difference."
In Cazorla, Wenger has one of the signings of the season. Snapped up for around £15million from Malaga this summer, the midfielder has had no trouble settling in to the rigours of the English game, scoring seven goals and providing many assists.
Benitez has been aware of the 28-year-old's talents for some time.
"We knew him before and he was always a player you monitor," Benitez said.
"He was playing for Villarreal and the chairman didn't want to lose one of his best players before they were in trouble.
"But now Cazorla is doing well in a good team with a good manager.
"When I came to England I brought (Xabi) Alonso and one or two others and it took them time to settle down, but Spain has a very good level now and it is good for the game here.
"You can bring the best from them and combine it with the best from England."