The Blues have not won in six games and suffered a 3-1 defeat against Arsenal at the Emirates on Monday.
“Chelsea are on such a bad run and there are real problems there. I think they need to do something in January and bring in a couple of players because it’s just not going for them,” Parlour told TalkSPORT.
“Too many of them are struggling for form and they’ve got problems. I don’t know whether it’s behind the scenes, whether it’s Ray Wilkins leaving, but they are in freefall.
“I can’t now see them challenging for the title. For me it’s between Manchester United, Manchester City and Arsenal.”
Parlour was impressed with his former side’s performance against Chelsea.
“It was a great performance and I was so pleased. They really turned it on and that’s the way they need to keep playing,” he added.
“It was make or break and they had to win that game. And they have to believe in themselves because they’ve got the players and the squad [to win it]. They’ve just got to believe it.”