Real Madrid secured a 3-1 victory in the second leg, building upon their 3-2 win in the first leg.
This marks the third Champions League elimination at the hands of Real Madrid in four seasons and the first time since Guardiola’s arrival in 2016 that Manchester City has failed to advance past the Round of 16.
The teams met earlier in the competition due to City’s 22nd-place finish in the 36-team group stage.
“The better team won,” Guardiola told Spanish TV station Movistar.
“We have had a bad year in the competition. If you finish 22nd, it is because we haven’t been right. It has been our worst year.”
Injuries have significantly impacted City’s performance this season. Erling Haaland remained on the bench at the Santiago Bernabeu due to a knee injury, while John Stones was substituted within the first 10 minutes of the match.
City managed to score a consolation goal, with Nico Gonzalez converting after Omar Marmoush’s free-kick hit the crossbar.
Guardiola indicated that the rebuilding process has already commenced, as City invested £170 million ($214 million) to acquire Marmoush, Gonzalez, Abdukodir Khusanov, and Vitor Reis during the mid-season transfer window.
“It is normal. Nothing lasts forever and in the group there are players that have marked an era,” added Guardiola.
“We cannot deny what this group of players have done, winning six Premier Leagues in seven years given what that competition is.
“In Europe always getting to the quarter-finals, semi-finals, final. It says a lot about what we have done.”
Real Madrid’s past four victories over Manchester City have all culminated in them winning the competition, a trend that has led Guardiola to consider this iteration of Carlo Ancelotti’s team the most formidable he has encountered.
“This year we faced the best Madrid. In the previous ones, going through or not, we were very good,” he said.
“They are better because they are able to have the ball for long spells, can run, can defend well with a high line when they want, but also defend well with men behind the ball. You have to congratulate them.”