The Azzurri matched the world champions for the duration of the game, holding them to a 0-0 draw, only for Leonardo Bonucci to miss the decisive kick during the shootout.
"We earned respect. The respect of our opponents and the awareness that we're able to compete with the best," Prandelli told reporters.
"Spain are a great team, they have continuity and we wish to have that continuity.
"We played the ball a lot, short passes on the floor and displayed great generosity. When you get to the penalty kicks though, anything than happen."
Prandelli went on to say that his side would likely be in the final had they managed to maintain the momentum they displayed during the first 45 minutes.
"We played a great first half and then of course we couldn't keep up the same intensity," he added.
"We tried to play the ball low, but they were very good in defence and exploited some chances on the counter-attack. We used [Emanuele] Giaccherini a lot, especially in the first half and I have to congratulate my team.
"As I said before, we wanted to play the way we did. We wanted to deal with Spain on a technical level as well, we started out this way and I want to continue this because we have the right qualities to play this way."
Spain will take on Brazil in the final on Sunday.