The defending champions were beaten 1-0 by Cerezo Osaka of Japan at the Tianhe Stadium, but progressed 5-2 on aggregate thanks to their dominant first-leg performance.
A Liao Lisheng own-goal just after the interval was enough to condemn Lippi's men to a third AFC defeat of the campaign and the Italian pulled no punches in his assessment of their showing.
"We didn't do well. Our goalkeeper, defenders and midfielders made lots of mistakes which led to a sense of insecurity for the entire team," he said.
"Today's opponents didn't send their best team, so mentally our team was too relaxed. This game will be worth reviewing, and it also proved that Guangzhou Evergrande is not a great team because a great team wouldn't show such a loose attitude in an important match like this."
Lippi will hope for a better showing in the quarter-finals against Pohang Steelers - after the three-time Asian champions won through 3-1 on aggregate.
Leading Jeonbuk Motors 2-1 from the first leg, an early Kim Seung-Dae goal eased any nerves for the hosts as they brought their fine domestic form into the AFC once again.
Al Ain won through 4-2 against fellow UAE outfit Al Jazira, with Asamoah Gyan again tormenting the visitors with a brace.
Gyan scored in his side's 2-1 first-leg victory before hauling them through on Tuesday to set up a last-eight tie with Al Ittihad.
Al Ittihad saw off fellow Saudi side Al Shabab 3-1 to progress 4-1 on aggregate - with 19-year-old striker Fahad Al Muwallad scoring twice for the visitors.
