Houllier said: "I think it was a mistake on my part because I should have should have carried on regardless.
"I thought, right to the end, I was going to sign him, but then I didn't feel the thing was right.
"I did not like the fact that, while he was at Liverpool with a purchase option to play for us, his brothers had tried to contact other clubs to sell him. I did not think that was fair play."
Houllier owned up to his blunder in a DVD devoted to Anelka's career.
It also features Steven Gerrard, who says: "Anelka is the type of player you want on your team rather than playing against you."