Seeking to bounce back from Saturday's Klassiker defeat to rivals Borussia Dortmund that left RB Leipzig top of the Bundesliga, Ancelotti's men were undone by the tournament newcomers from Russia in their penultimate Group B contest.
Bayern are already through to the last 16 but seeing goals from Sardar Azmoun and Christian Noboa either side of a Dmitry Poloz penalty did nothing to improve their spirits, as well taken strikes from Douglas Costa and Juan Bernat counted for nothing.
"We have not underestimated Rostov," Ancelotti told the club's official website.
"We did not play well - that was the reason for the defeat.
"After half-time we made too many mistakes. At the moment, it is very difficult for us."
Captain Philipp Lahm agreed mistakes caused Bayern's downfall but lambasted a "carefree" attitude within the Bundesliga champions' squad that he wants to see eradicated by the time Bayer Leverkusen visit the Allianz Arena on Saturday.
"We wanted to win here, we have failed," he said. "Currently we are a bit too carefree.
"We need to know that the opponent can also score goals that can be penalised for mistakes.
"We're doing too much of that at the moment. I do not know why this is so, but we have to turn this off as quickly as possible.
"On Saturday the next difficult opponent will be waiting."