Both men face former club Real Madrid this weekend.
Pellegrini told AS: "Isco's arrival has been important because Canales left and Fekir was injured. We needed a person to give us football. I was fortunate to meet and buy Isco when he was at Málaga.
"Then I wanted to take him to Manchester City, but he wanted to go to Madrid. I wanted to have an important challenge in football, leaving aside the economic aspect. Talking to him I thought he was the right person and he confirmed it with an impressive dedication.
"When he arrived in Malaga he was a different player. Having played for so many years in Madrid and with so many players of that level made him progress a lot. Now 31 years old, he has no problem being the Isco who has ten years of experience in his career. He adds the technical part to the physical part with everything he runs every game, the numbers are spectacular."