Ante Rebic capitalised on a goalkeeping error from Willy Caballero to put the Croatians in the lead, before a sublime goal from Luka Modric and a tap-in for Ivan Rakitic put Argentina to bed and in severe danger of being knocked out of the World Cup.
Zabaleta, who has 58 caps for his international side, was stunned by Argentina's display and expected a lot more from his former teammates at the Nizhny Novgorod Stadium.
"It was a really poor performance by Argentina, especially in that second half. You have to give credit to Croatia, though, they are a very good side and they played very well today," the West Ham right-back told BBC Sport after the game.
"I have no idea why we didn't play with two strikers - with Gonzalo Higuain and Sergio Aguero - we needed men in the box. It would have made it so hard for the defenders with both strikers on - because someone goes deep and someone goes on the shoulder - it was easy for them.
"I've never seen a performance like this by Argentina. Never before. There was a lack of spirit and it's very strange to see. In the second half we weren't good enough. I think after the Willy Caballero mistake it was mentally very difficult for the players to come back and win the game. All Argentina's players play for big clubs - they should have done much, much better."
Argentina now have to rely on Iceland dropping points against Croatia or Nigeria to have a chance of finishing in the top two of Group D.