Diego Simeone was fuming with the referee's decision to rule out Julian Alvarez's spot-kick in the penalty shoot-out as Atletico Madrid were knocked out of the Champions League by rivals Real Madrid.

Real won the shoot-out 4-2 to advance to the quarter-finals following an enthralling last-16 tie which ended 2-2 on aggregate after Atletico's 1-0 win on Wednesday.

During the shoot-out, Alvarez slipped and the VAR spotted that his left foot touched the ball slightly before he kicked it with his right.

With only one touch permitted, the penalty, which would have levelled the shootout at 2-2, was chalked off.

Simeone was left frustrated with referee Szymon Marciniak's decision, saying that he was yet to see an image that conclusively showed that Alvarez touched the ball twice.

"The referee said when Julian got to the penalty spot he touched the ball with his standing foot, but the ball did not move," Simeone told reporters.

"I've never seen the VAR called to review a penalty in a shootout... Never.

"Did you see him touching the ball twice? Please, whoever was present in the stadium and saw him touching the ball twice, the ball moving, please come forward and raise your hand.

"I don't see anybody with their hand raised so that's all I have to say... next question."

This marks the fifth time that Atletico have been knocked out of the Champions League knockout stages (including final defeats) by Real Madrid; only Bayern Munich (seven times v Real Madrid) have been eliminated by a single opponent more often in the competition’s knockout rounds.

Simeone said that despite the heartbreaking defeat, he was proud of his players and hoped they could recover quickly as they host title rivals Barcelona in LaLiga on Sunday.

Only one point separates Spain's three biggest clubs in one of the closest LaLiga title races in recent years, with Barca leading the pack on 57 points, ahead of second-placed Real Madrid on goal difference with Atletico Madrid in third on 56 points. Barca have a game in hand over both.

"We'll see if this defeat will cost us moving forward. The way we went out, it's not easy to digest," Simeone said.

"We have a great opponent on Sunday. I'm sure Barca wanted us to go to extra time. We will get to the game tired, beaten after we competed the way we had to compete tonight, but we'll give it everything we've got on Sunday.

"Our fans went home annoyed, but knowing that their team gave their all. There's a way to go to sleep thinking too bad, but this team deserved the applause. It was a beautiful evening, but unfortunately we didn't go through. I go home in defeat, but in peace."