"We met a team of great quality, one of the best in the world," Prandelli told RAI Sport.
"We made mistakes coming out of defence and started badly, but in my view we moved the ball well. We lacked that grit and finish around the box that a team needs.
"Honour to Argentina, as they are a very strong side. Missing certain key players, we were forced to make different choices in our passing and approach play."
Italy play host to Bulgaria for a World Cup Group B qualifier on September 6.