Pepe, 29, felt that Madrid were the better team during the clash at La Rosaleda and Malaga were “fortunate” to win the game.
"We knew how important this match was, we worked hard and faced up to the challenge," the Portugal international told reporters after the match.
"We played much better. Malaga, in the second half, had the chances and converted them into goals.
"We tried hard to get the win but they were fortunate to leave here with the win and score three goals. The dressing room is on a bit of a downer, we really wanted to win this game.
"La Liga is even more difficult now but if we do get the opportunity to catch up … we have to work as hard as we did in this match."
The Brazilian-born star also commentated on Jose Mourinho’s decision to drop captain Iker Casillas, described by the coach as a “technical decision”.
He added: "The Casillas matter is one for the coach to decide and we have to accept that. Now we have to rest so that when we come back after the break, we will be fired up to play as well as we can."