Pep Guardiola conceded Manchester City needs a rebuild after being swept aside by a Kylian Mbappe hattrick, as Real Madrid progressed to the last 16 of the Champions League 6-3 on aggregate.

It is the third time in four seasons that City has been knocked out by the Spanish giant, but the first time since Guardiola joined in 2016 that the English champion has failed to reach the competition's last 16.

The sides were drawn to face off much earlier in the competition this time, as City only sneaked through the league phase after finishing 22nd in the 36-team table.

"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 played a significant part in City's struggles this season.

Erling Haaland did not get off the bench at the Santiago Bernabeu due to a knee injury, while John Stones had to be replaced inside the first 10 minutes.

Guardiola said his side missed Haaland.

"Erling tried to practice yesterday, but he was really hurting from the challenge against Newcastle. It hurt when he walked, when trying to go up and down stairs," Guardiola said.

"This morning he told me he wasn't ready, that he wasn't feeling well. The plan was to try to get a better result than in Manchester and, in his condition, it wasn't the best option."

City's consolation goal came thanks to two of their January signings, as Nico Gonzalez tapped in after Omar Marmoush's free-kick came back off the crossbar.

Guardiola said the rebuild had already begun, as City spent 170 million pounds ($214 million) on bringing Marmoush, Gonzalez, Abdukodir Khusanov and Vitor Reis to the club 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 quarterfinals, semifinals, final. It says a lot about what we have done."

Madrid has gone on to win the competition each time it has beaten City in the past four years, and Guardiola believes this version of Carlo Ancelotti's men is the best he has faced.

"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."

Agencies