City came close to signing Isco last summer and are expected to try again at the end of this season.
"I'd have loved for him to join. It would have been a great move for him too, but I wish him all the luck in the world," Pellegrini told Marca.
"Not at the moment (is he world class), when he's not playing as regularly as he needs to. He has all the tools to become one, though."