The Italian watched his team complete a comprehensive 9-2 aggregate victory over Schalke in the UEFA Champions League last 16 with a 3-1 home win on Tuesday.
Real are three points clear atop La Liga on 70 points ahead of Sunday's El Clasico, with Atletico Madrid (67) and Barcelona (66) still in the hunt.
Barcelona have lost two of their past four league matches, but looked to be getting back into some form with a 7-0 thrashing of Osasuna on Sunday.
But Ancelotti said the match came at a good time for his side, who suffered a 2-1 loss at Barca in October last year.
"I guess we arrive in a really good moment. We are going to play against a great team," he said.
"I think we have improved a lot from the first game against them (Barcelona), so we are going to give our best because we need do to be at 100 per cent to win."
Cristiano Ronaldo scored a brace and Alvaro Morata a 75th-minute sealer in Real's 3-1 win over Schalke on Tuesday.
Ancelotti expects a tough quarter-final and is delighted to see three Spanish teams – Real, Barca and Atletico Madrid – in the last eight.
"To have three teams in the quarter-finals is very good for the Spanish football," he said.
"All the best teams are going to get to the quarter-finals. Olympiacos might be the surprise tomorrow if they win at Manchester United, but the rest are the best teams in Europe.
"They are going to be really difficult quarter-finals for all of us."
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