Phelan told reporters: "We came out and scored a goal which put us in a commanding position. After that we were in reasonable control and created a couple of chances, but then the game totally changed.
"The decision as amazing but we had to carry on. Playing Madrid with 10 men is very difficult and we feel disappointed we needed with 10 men.
"The manager is not in a state to talk to the referee about the decision. I think it speaks volumes I am here speaking now and not the manager of this fantastic football club. The decision seemed very harsh, possibly incredible at that moment in the game."
Nani was dismissed following a mid-air collision with Alvaro Arbeloa early in the second half.