Pellegrini concedes he did not realise that scoring one more goal against Bayern Munich in midweek would have taken his side above the Germans in the final Group D standings.
City memorably came from behind to beat the European champions 3-2 at the Allianz Arena on Tuesday but the gloss was taken off the achievement by confusion over the goal difference rules.
The result meant City equalled Bayern's 15 points but remained in the runners-up spot - and are facing a tougher draw in the next round - because of their inferior head-to-head record.
City knew that bettering Bayern's 3-1 win over them at the Etihad Stadium would take them above the Germans but Pellegrini had assumed that to mean victory by three clear goals.
He was not aware 4-2 would have sufficed and so he attracted criticism by not sending on top scorer Sergio Aguero in the closing stages.
Pellegrini said: "It shouldn't have been happening, but it is very easy why it happened.
"Before the match I knew we had to win 3-0 because we needed one goal more than they scored here.
"After when they score the first goal, I continued (thinking) that 3-1 was not enough because they had a better goal difference, so I continued (thinking) that we had to win by three goals, 3-0 or 4-1.
"After when they scored the second goal, I didn't continue thinking about what happened if we scored four goals.
"That was my mistake because not many teams score four goals against Bayern Munich.
"I tried to think better about how to arrange the game that we were losing 2-0.
"First of all, I recognise absolutely my mistake but I don't have any guilty conscience about what we did because we always tried to score the fourth goal.
"We couldn't, but remember that I changed (David) Silva after 70 minutes for (Alvaro) Negredo, not for (Vincent) Kompany, not for (Dedryck) Boyata, so we continued with two strikers trying to score.
"In the last five or seven minutes, Bayern Munich had 80 per cent of possession so we tried with (Jack) Rodwell to recover the ball, to attack, not to defend.
"I apologise for me and the team that we couldn't score four goals against Bayern Munich."
Pellegrini made seven changes for the game but maintains he wanted to try to secure top spot from the outset, even if it was not top priority.
City face Arsenal in a big Premier League game this weekend and Pellegrini was happy enough to settle for second place in the group and progress to the next phase.
He said: "That is the most important thing. I am not afraid of who we are going to play in the round of 16.
"I don't believe some teams are weaker than the other teams.
"I believe the 16 best teams in Europe are all exactly the same for us.
"I think the trust the team has after beating Bayern Munich in their own stadium, that is much much more important than being first in the group."