Against the odds last year, Neil Lennon's side emerged from a tough group which included Barcelona, Benfica and Spartak Moscow, beating the Catalans in Glasgow on the way, before losing to Italian giants Juventus.
Despite losing key players in Gary Hooper, Victor Wanyama and Kelvin Wilson this summer, the Scottish champions negotiated three qualifying rounds to be drawn once more against Barca, with AC Milan and Ajax also in their section.
Celtic begin their Group H fixtures with a trip to Milan next week with most people believing it unlikely they can finish in the top two to make the knockout stages for the second successive year.
However, asked if the Parkhead side faced a more difficult task this season, Larsson, who also played for Barcelona, said: "Last season's group was difficult and so is this one.
"Being realistic, you can see that it is a very tough group for Celtic.
"But nothing is impossible. The teams coming to Celtic Park are not going to enjoy it that much.
"It depends what they can get out of the games here and hopefully do something away from home - then you just never know.
"It was fantastic to watch Celtic do so well last season.
"Last season's success will help them but they have lost a few players who were important to them.
"It's time for the other guys to step in and try to have the same level as the other guys who have left.
"There was a wee smile when I saw Barcelona come out of the draw again, as they are two clubs who have been special to me in my career."
Larsson, 41, was at Parkhead on Sunday to play for a Celtic XI against a Petrov XI in a charity match on behalf of former Celtic midfielder Stiliyan Petrov who is in remission from acute leukaemia.
The principal beneficiaries were the Stiliyan Petrov cancer charity foundation and the Trussell Trust, who run food banks across the UK.
The Swede scored from the spot but the Petrov XI won 5-3 in front of a near capacity 60,000 crowd.
Larsson believes Petrov's illness has made a tight-knit group of former team-mates, including Lennon, Johan Mjallby and Chris Sutton, all of whom also featured at Celtic Park, even closer.
"It was a great occasion," he said.
"It was nice to see so many people turning out to sell out the stadium and give him a fitting tribute.
"The game wasn't the most important thing, it was about being there for Stan.
"Stan was a big part of the group of players we had. We were very tight and still are.
"When something bad happens to anybody that is close to you and you shared so much with, it makes you tighter.
"It brings you closer together, it makes you realise that you are not immortal.
"Stan was fitter than most people so you see that it can happen to anyone.
"But it was fantastic to see that Stiliyan is getting better and better, and that is the most important thing.
"He was very happy and very emotional. It was a day he will never forget."