Prandelli's men went down to a goal from Pedro Rodriguez but the national boss was less than impressed with his side's ability to run out the game against the European and world champions.
"At this moment of the season the fitness levels compared to Spain are almost embarrassing. We need to work hard, as to play with a high tempo we need intensity in our running," the 56-year-old told RAI Sport.
"We wanted to win the wall back early, we never managed it because we weren't physically sharp enough. I'll be honest, I did not expect the players to have these fitness levels."
Parma defender Gabriel Paletta debuted for the national side, having previously represented Argentina at Under-20 level.
Prandelli said he used the friendly to try different set-ups, while also praising Paletta's output.
"In a friendly I had to evaluate things that you can't even think about at a World Cup," the coach said.
"The midfield, which in recent years has been a reference point, again gave us good guarantees.
"At this moment with these fitness levels it's impossible to judge the difference in quality between us and Spain. Quite simply, they always got to the ball first.
"Paletta had a wonderful debut and at times Alessio Cerci also did well."
Paletta said he was disappointed his first cap for Italy resulted in a loss.
"I am happy with my debut, but a little sad at the result," Paletta, 28, said.
"I settled in well from Monday and the rest of the lads gave me a warm welcome. I have Italian roots, as my family hails from Catanzaro."
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