Killie held their own against the reigning Scottish champions only to go down courtesy of a Tim Clancy own goal in the final minute of regular time.
Paatelainen believed his side were as good, if not better, than Walter Smith's and was disappointed they could not get a result at Ibrox.
"I thought it was a great game," Paatelainen said. "We passed the ball well and I thought we dominated the midfield thoroughly.
"With the first goal (scored by El-Hadji Diouf) there was a lack of communication and we lost the ball a little too easily.
"They're a quality side with quality individuals and if you're not organised and solid, or don't communicate then they'll punish you.
"We got a goal back and changed it a little bit in the second half and I thought our second-half performance was excellent.
"It's so, so disappointing for the players to lose that goal in the end. It's a pity because our performance didn't merit a defeat."
The loss did not alter Killie's position of fourth on the league table whilst 'Gers went within two points of league leaders Celtic whilst having a game in hand.