It meant Real reached the quarterfinals 5-1 on aggregate. Vinicius Jr struck twice, once from the penalty spot after City captain Bernardo Silva was sent off for a deliberate hand-ball.
“They always have shown (incredible spirit). It’s tough (being) 3-0 down and then 4-0 at 10 v 11, it’s almost impossible,” Guardiola said.
“When I analyse the game, I love the way we started and played, I would love to play 11 v 11 but in football these circumstances happen.
“Madrid are an extraordinary team and punish you when you make a mistake.
“The future will be bright and next season we will be back. We will learn.
“Sport is a challenge. We congratulate Madrid and we will go home and have the feeling that we could not play a proper game 11 v 11 to see what happened.
“Next season I don’t know what happens but of course Khusanov, Cherki, Semenyo, it’s the first time they play Champions League. This can take time.
“I see a lot of good players and many good things.
“The first 15 minutes there and the first 20 minutes here define us quite well. Here we said 3-0 was difficult, almost impossible but let’s try. We were there.
“Even then we score and 11 v 11, we don’t know what happens. Try again and go.”
Guardiola, on City's objectives, also said: “We will challenge the best team in England and so far the best team in Europe. We will challenge them and then we will play them in the Premier League.
“Sometimes they are better and it’s a good mirror to see what we have to do to achieve that.
“We have a final on Sunday, the FA Cup is still here and we have a Premier League still to fight. We’ll try to fight and prepare good decisions for next season. We’ll be back.
“One game is not big happiness or the end of the world. We will prepare and see who we are.”