Diego Costa's 11th-minute goal at the Santiago Bernabeu was enough to give the visitors a second consecutive derby win in enemy territory after their last trip to Real saw them win the Copa del Rey in May.
Ancelotti said Real - who are now five points behind top-two sides Barcelona and Atletico - had some big problems to fix, but the Italian was hesitant to change too much of his game style.
"I think that we have to carry on with our work," Ancelotti said.
"There are problems when you try to changes things.
"We try to play more with the ball on the ground.
"We played well the matches except against Elche and Atletico de Madrid which weren't good.
"I won't change the line of our game.
"Players are ready to play with this system and I'm confident that we're going to improve as this team has much quality.
"We have to improve many things, attitude, confidence as we've lost it in the last two games."
Ancelotti said his star-studded side were finding it hard to create space in the final third against well-organised defences.
"We've experienced the same problems as the previous matches," he said.
"The start for our game is slow and when we get to the attacking positions, we cannot find enough space to find a positive solution.
"When you have to play a team with a good defensive structure, if you play slowly it's more difficult.
"Also, we receive a goal at the beginning of the match, it got complicated, we lost our confidence. The match wasn't good."
Ancelotti admitted the already significant deficit to their title rivals was 'not a little', but also said it was fortunate there was a long way to go in the season.
"We have to think that this team has done it well until last week," Ancelotti said.
"We just equalised a match against Villarreal, we won all matches, we started Champions League well.
"It's true that being five points behind Barcelona and Atletico de Madrid ... it's not a little, but we've plenty of time, the league is long enough to recover."
