The Italian has lauded the influential Spanish playmaker and his Barca team-mate Neymar, while he feels Carlo Ancelotti needs more time at Real Madrid
The 33-year-old has made well over 650 official appearances for the Catalans since making his official debut in 1998-99, winning 22 trophies for the club, including three Champions League titles.
Xavi was also an integral part of the Spain side which sealed back-to-back European titles and the World Cup in 2010 and Capello is adamant he remains the finest in his position in the world - although he feels Brazil starlet Neymar could take on the mantle of Barca's leadling light in the coming years.
"Xavi is the best midfielder of the last decade," the Italian coach told Onda Cero, before adding: "Neymar could become the leader of Barcelona in the future."
Capello then went on to have his say on Carlo Ancelotti's situation at Real Madrid and insisted that his compatriot needs time to find his way at the Santiago Bernabeu side.
"Ancelotti needs time. The players need to adapt to the changes. For me, Real Madrid remain favourites to win the Champions League."
Madrid are currently preparing for Wednesday's Group B game against Copenhagen, while Barcelona are in Scotland to take on Celtic on Tuesday.