Despite the loss, Guardiola hailed Ederson as City's best player on the night, crediting him for making multiple saves that kept Real Madrid at bay.
The match saw an eventful exchange of goals. Erling Haaland opened the scoring, and Kylian Mbappe equalised for Real Madrid with an unconventional shinned effort that looped into the net. However, City quickly responded, regaining the lead through a Haaland penalty.
Madrid's equaliser stemmed from a long ball played by Ederson, which was swiftly returned, leaving him to parry it into the path of Brahim Diaz, who capitalised on the opportunity.
The winning goal came from a mistake in City's defence when Mateo Kovacic's misplaced pass was intercepted by Vinicius Jr. The Brazilian dribbled past Rico Lewis and set up Jude Bellingham for a simple tap-in.
Guardiola admitted that City made too many errors on the night but maintained his support for Ederson. He defended the goalkeeper's decision before Madrid's second goal, arguing that a different action could have led to the same outcome.
Despite the disappointment, Guardiola's faith in Ederson remained unwavering, as he praised the Brazilian's overall performance and shot-stopping efforts.
"Eddy decided to play a long ball, it was not a good kick and they scored," said Guardiola. "Maybe we played short and they scored and you say play long.
"Players take a decision in the moment - sometimes it works, sometimes it doesn't but it's not today, it has happened many times. Reflect and think and maybe in the future it will not happen and be brave for the next games.
"The previous games, the way we played we had to win for a big margin and it didn't happen. Today was tighter. Madrid had chances and played good with the ball when in the past it didn't happen.
"In the moments that we should have the situation we could not manage it but we arrived in the last minuets with a good result and we could not keep it."
Manchester City secured a second successive Premier League victory at home against Sunderland, Chelsea were held scoreless away to Bournemouth while Tottenham managed to beat Brentford.
Manchester City manager Pep Guardiola insists his side are moving in the right direction as they continue to evolve following an off-season of significant rebuilding.
Joan Laporta has reignited the tension between Barcelona and Real Madrid after declaring that Los Blancos "represent power", while insisting Barcelona stand for "freedom".
Real Madrid's hard-fought victory over Athletic Bilbao came with another unwelcome injury scare, but the Spanish champions remain hopeful that Eduardo Camavinga will still feature against Celta Vigo on Sunday.
